Competitive markets
- A competitive market has many firms selling similar products, so no single firm controls the price.
- Benefits for consumers: lower prices, more choice, better quality and innovation. Firms must be efficient to survive.
Concentrated markets
- A monopoly is a market with a single seller. In UK law, a firm with 25% or more of a market can be treated as having monopoly power.
- An oligopoly is a market dominated by a few large firms, such as supermarkets or mobile networks.
- Monopolies can charge higher prices, offer less choice and have little incentive to improve. But they may have economies of scale and profits to invest in research.
- Barriers to entry, such as high set-up costs, patents and brand loyalty, stop new firms entering.
Regulation
- The Competition and Markets Authority (CMA) investigates mergers and anti-competitive behaviour, such as firms agreeing prices (collusion), which is illegal.
- Natural monopolies, such as water supply, are often regulated to protect consumers.
Key terms
- Competitive market
- A market with many firms and no single firm controlling the price.
- Monopoly
- A market with one seller, or a firm with a dominant share.
- Oligopoly
- A market dominated by a few large firms.
- Barriers to entry
- Obstacles that stop new firms entering a market.
- Collusion
- Firms secretly agreeing prices or output.
- Competition and Markets Authority
- The UK body that promotes competition.