Market Power and Market Failure | Edexcel A-Level Economics B (9EB0)
Market Power and Market Failure
- 93 questions
- 7 subtopics
- Theme 4: making markets work
- Paper 1 and Paper 3
Market Power and Market Failure is examined in Paper 1, Markets and how they work, and in Paper 3, The economic environment and business.
It covers cartels, collusion and restrictive practices, monopsony, natural monopoly and power in the labour market, the implications of market failure for firms, consumers and government, promoting competition: anti-competitive practices, mergers and privatisation, regulating natural monopolies and protecting consumers and employees, the Competition and Markets Authority and EU competition policy and the benefits and costs of regulation.
Sample questions from Market Power and Market Failure
Answer each one closed book first, then open the answer.
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Cartels, collusion and restrictive practices
What is bid rigging?
Show the answer
Bid rigging is where firms tendering for a contract agree in advance who will win and submit deliberately uncompetitive bids to make that bid look cheap. -
Cartels, collusion and restrictive practices
What is a leniency programme, and why does it work against cartels?
Show the answer
A leniency programme cuts or removes the fine for the first cartel member to confess, which makes every member fear being reported first and destroys the trust the cartel needs. -
Monopsony, natural monopoly and power in the labour market
Why can monopsony power reduce supply in the long run?
Show the answer
Squeezed margins leave suppliers unable to invest and drive some out of the industry, so future output and quality fall. -
Monopsony, natural monopoly and power in the labour market
What is monopsony power in the labour market?
Show the answer
It is the power of a dominant employer to set wages below the level a competitive labour market would pay. -
The implications of market failure for firms, consumers and government
Why should a supplier care whether its customer has monopsony power?
Show the answer
Its margins, payment terms and even its survival depend on a buyer it cannot afford to lose. -
The implications of market failure for firms, consumers and government
How does market power affect the distribution of income?
Show the answer
Profits above the competitive level transfer income from consumers to the owners of the firm, which tends to widen inequality. -
Promoting competition: anti-competitive practices, mergers and privatisation
What is a horizontal merger?
Show the answer
A horizontal merger joins two firms at the same stage of the same industry, such as two supermarket chains. -
Promoting competition: anti-competitive practices, mergers and privatisation
Name two UK industries privatised during the 1980s.
Show the answer
Telecommunications, through the sale of British Telecom, and gas supply, through the sale of British Gas.
The 7 subtopics
One subtopic is one session. Work down the list.
| Subtopic | What it covers | Questions |
|---|---|---|
| Cartels, collusion and restrictive practices | Cartels and how they raise prices, overt and tacit collusion, restrictive practices including bid rigging and market sharing, why cartels are unstable, OPEC, why cartels are illegal in the UK, leniency programmes, the maximum fine for anti-competitive agreements, consumer losses from price fixing, and conditions that make cartels easier to run. | 13 |
| Monopsony, natural monopoly and power in the labour market | Monopsony power and UK examples, gains at suppliers' expense, benefits to consumers and long-run effects on supply, natural monopolies and examples, wasteful duplication of networks, falling average cost over the relevant output range, unregulated natural monopoly as market failure, monopsony in the labour market, trade unions, and monopolies of labour supply. | 14 |
| The implications of market failure for firms, consumers and government | Market failure and the three groups it affects, harm to consumers and small competitors from market power, suppliers facing monopsony, effects on tax revenue, the case for intervention, government failure, income distribution, lack of competition and long-run productivity, failure spreading between industries, and weighing the cost of intervention. | 12 |
| Promoting competition: anti-competitive practices, mergers and privatisation | Anti-competitive practices and those competition law prohibits, abuse of a dominant position and why dominance itself is legal, horizontal and vertical mergers and why horizontal ones are blocked, grounds for blocking a UK merger, privatisation and industries privatised in the 1980s, the arguments for and against it, and deregulation. | 13 |
| Regulating natural monopolies and protecting consumers and employees | Why natural monopolies are regulated rather than broken up, price cap regulation and RPI minus X with its drawback, rate of return regulation, UK industry regulators, yardstick competition, asymmetric information, UK consumer protection law and why it is needed, employee protection, the minimum wage and employer power, and the costs and productivity effects of employee protection. | 14 |
| The Competition and Markets Authority and EU competition policy | The Competition and Markets Authority and its functions, action against cartels, phase 1 and phase 2 merger investigations and when mergers are reviewed, market investigations and remedies, the behaviours EU competition law prohibits, EU policy for UK firms after Brexit, state aid rules, EU merger control, and scrutiny of digital platforms. | 13 |
| The benefits and costs of regulation | The benefits of regulating business, allocative and dynamic efficiency, regulated monopolies and their business customers, environmental regulation, the regulatory burden on small firms, regulation as a barrier to entry, the opportunity cost of competition policy, weaker investment incentives, unintended consequences, regulatory capture, judging a regulation's worth, and light-touch regulation. | 14 |
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.
Nearby topics
Edexcel A-Level Economics B Active Recall Guide
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