Competition and Market Power | Edexcel A-Level Economics B (9EB0)
Competition and Market Power
- 159 questions
- 12 subtopics
- Theme 4: making markets work
- Paper 1 and Paper 3
Competition and Market Power is examined in Paper 1, Markets and how they work, and in Paper 3, The economic environment and business.
It covers market structures across the spectrum of competition, perfect competition and what the model explains, market structure, pricing strategies and consumers, non-price competition and the limitations of perfect competition, contestability, ease of entry and barriers to entry, barriers to entry, market structure and economies of scale, concentration ratios, interdependence and tacit agreement, price discrimination, average and marginal cost, revenue and profit, contribution, business objectives and pricing strategies, productive and allocative efficiency and productivity, market orientation and interrelated markets.
Sample questions from Competition and Market Power
Answer each one closed book first, then open the answer.
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Market structures across the spectrum of competition
What is a pure monopoly?
Show the answer
A pure monopoly is a market supplied by a single firm, which therefore faces the whole of market demand itself. -
Perfect competition and what the model explains
Explain what freedom of entry and exit means for the way a market adjusts.
Show the answer
Firms can move resources into a market where profits are high and out of one where they are low, so supply follows demand without long delay. -
Non-price competition and the limitations of perfect competition
What is product differentiation?
Show the answer
Product differentiation makes a product distinct from its rivals in design, quality, image or service, whether or not the difference is a real one. -
Contestability, ease of entry and barriers to entry
How long does a UK patent last, and what right does it give?
Show the answer
A patent lasts up to 20 years and gives its holder the exclusive right to exploit the invention. -
Concentration ratios, interdependence and tacit agreement
State one weakness of the concentration ratio as a measure of competition.
Show the answer
It counts market share but not the threat of entry, so a concentrated market that is easy to enter may still be competitive. -
Price discrimination
How can price discrimination benefit consumers?
Show the answer
The low-price group is served at a price it can afford, and the extra revenue may cover fixed costs that would otherwise force the service to close. -
Contribution, business objectives and pricing strategies
How is break-even output calculated from contribution?
Show the answer
Break-even output equals fixed costs divided by the contribution per unit. -
Productive and allocative efficiency
Can a firm be productively efficient but allocatively inefficient? Explain.
Show the answer
Yes, because it can make at the lowest possible cost a product that few consumers actually want, so efficient production is devoted to the wrong output.
The 12 subtopics
One subtopic is one session. Work down the list.
| Subtopic | What it covers | Questions |
|---|---|---|
| Market structures across the spectrum of competition | Market structure and the spectrum of competition, the assumptions of perfect competition and price taking, pure monopoly, oligopoly, imperfect competition and an example of it, demand curves in perfect competition and monopoly, close substitutes and pricing, market power, competitive duopolies, and features shared by imperfectly competitive markets. | 13 |
| Perfect competition and what the model explains | Perfect competition as a benchmark, how supernormal profit is eroded and losses remove firms, normal profit, long-run price and average cost, pressure to cut costs, real markets close to perfect competition, online marketplaces, prices compared with monopoly, freedom of entry and exit, perfect information, advertising, and long-run efficiency. | 13 |
| Market structure, pricing strategies and consumers | How market structure limits pricing freedom, cost-plus pricing, price skimming and penetration pricing, predatory pricing as an abuse of dominance, limit pricing, loss leaders, price leadership in oligopoly, dynamic pricing, consumer gains from competition, consumer losses under a dominant firm, and ways a monopoly can benefit consumers. | 13 |
| Non-price competition and the limitations of perfect competition | Non-price competition and supermarket methods, oligopolists' reliance on it, advertising and demand elasticity, product differentiation and its costs, and the limitations of perfect competition: identical products, heavy investment, dynamic efficiency, perfect information, social welfare, and a static model. | 12 |
| Contestability, ease of entry and barriers to entry | Contestable markets and the threat of entry, sunk costs, hit-and-run entry, the internet and retailing, barriers to entry from product differentiation, branding and start-up costs, intellectual property and UK patents, pharmaceutical firms, and how research and technological change can raise or lower barriers. | 14 |
| Barriers to entry, market structure and economies of scale | How barriers to entry shape market structure and what happens when they fall, economies of scale, internal economies including purchasing and technical, internal against external economies, the long-run average cost curve, minimum efficient scale and the number of firms, calculating average cost, economies not passed on, and scale as a barrier to entry. | 13 |
| Concentration ratios, interdependence and tacit agreement | Concentration ratios and calculating them and market share, interpreting a high ratio and its weaknesses, interdependence in oligopoly, reluctance to cut or raise price, the kinked demand curve, price wars, tacit collusion and why regulators struggle to prove it, and the incentive to cheat on collusion. | 14 |
| Price discrimination | Price discrimination and its three conditions, preventing resale, separating rail customers, who pays the higher price, calculating a theatre's revenue, higher total revenue, consumer surplus under discrimination, benefits to consumers, student and senior discounts, cost-based price differences, and the need for market power. | 12 |
| Average and marginal cost, revenue and profit | The formula for average cost, average revenue and price, profit from totals and from averages, calculating average cost, average revenue and profit, marginal cost and marginal revenue and calculating each, why marginal revenue falls below price, and the profit-maximising output where marginal cost equals marginal revenue. | 14 |
| Contribution, business objectives and pricing strategies | Contribution per unit and calculating it, the link between contribution and profit, break-even output from contribution, contribution and marginal cost, accepting orders below average cost, the danger of repeated low-price orders, and how profit maximisation, sales or market share, survival and social or ethical objectives shape pricing. | 13 |
| Productive and allocative efficiency | Productive and allocative efficiency, monopoly and allocative inefficiency, the margin and marginal decision-making, price equal to marginal cost, opportunity cost, the trade-off between productive efficiency and competition, a firm that is productively but not allocatively efficient, X-inefficiency, competition, and dynamic efficiency. | 12 |
| Productivity, market orientation and interrelated markets | Productivity and calculating output per worker and labour cost per unit, productivity and average cost, technology, human capital and training and why firms hesitate to train, education, management quality, market against product orientation and allocative efficiency, interrelated markets for petrol and electric cars, derived demand, and shortages spreading across markets. | 16 |
How the guide is worked
Answering a question from memory stores it far better than reading the answer again. The guide runs that as a fixed procedure on one subtopic at a time, about twenty minutes a session.
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Step 1 · Closed book
Cover the answers. Work through one subtopic and write down what you can. Leave blanks where you have nothing.
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Step 2 · Open book
Go back to the top. Read each printed answer and write it out in full, including the ones you had right.
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Step 3 · Closed book again
Same questions, same order, from memory. The gap between pass one and pass three is the session result.
Read the full method, the return schedule and the research behind it.
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