Market structures

Explain which four conditions define perfect competition (number of firms, type of product, barriers to entry and price-setting power) and why firms in it are said to be 'price takers'. Illustrate this with the example of a fruit stall at a street market.

Explain what barriers to entry in a market are and describe three examples: an administrative licence, enormous start-up costs and a patent. State, in each case, which market structure they favour.

Explain the difference between a homogeneous product and a differentiated product and give two examples of each. Reason in which market structures each type of product is found.

Define these four market structures and give a real-life example of each, different from those covered in class: perfect competition, monopolistic competition, oligopoly and monopoly.

Classify each of these markets into its market structure and justify each decision using the criteria studied: wheat (thousands of farmers with a virtually identical product), hair salons in a city, supermarket chains (four chains account for almost all sales), and a country's mains gas network (a single pipe reaches each house).

Compare the power over the price of a vegetable farmer (thousands of producers with an almost identical product) and that of one of a country's four phone operators.

1. a) Who is a price taker and why?
2. b) Reason what would happen if the farmer raised his price by $20\ \%$.
3. c) Reason what the operator would have to weigh up before raising its tariffs by $20\ \%$.

In one country, only four mobile phone companies share practically the whole market.

1. a) Identify the structure of that market.
2. b) Point out two features that led you to that conclusion.

The coffee shop market in a city has hundreds of venues, each with its own atmosphere, menu and more or less loyal clientele.

1. a) Classify the structure of this market and justify it using at least two criteria.
2. b) If a coffee shop raises the price of coffee by $10\ \%$, will it lose all its customers? Relate your answer to product differentiation.

In a city, new boutique gyms open every year (spinning, crossfit, yoga), each with its own style and timetable, and they coexist with the big chains.

1. a) Classify the structure of this market and justify it with two criteria.
2. b) Explain what role product differentiation and advertising play in this structure.
3. c) Reason what will happen to the extraordinary profits of a very successful gym in the long run if entry into the market is free.

A country's food delivery market is dominated by three large platforms.

1. a) Classify the structure of the market.
2. b) Reason what barriers to entry make it hard for a small new platform to challenge them (already registered users, the network of riders, agreements with restaurants).

On a motorway, there are only three petrol stations in $200$ kilometres. When one of them changes its price, the other two copy it within hours.

1. a) Identify the structure of this market and explain what interdependence between firms is.
2. b) Reason why these firms might be tempted to agree on prices (collusion) and what consequences this would have for drivers.

The air route between two capital cities is operated by only two companies. When one launches a special offer, the other responds within a few days with a similar one; when one improves its schedules, the other imitates it.

1. a) Identify the market structure and explain it.

1. b) Explain what interdependence is and how it shows up in this case.

1. c) Explain why both companies may want to avoid a price war.

In an autonomous community, four supermarket chains account for $85\,\%$ of the market share. Following a $10\,\%$ increase in energy and transport costs, the prices of the basic basket in all four chains have risen identically ($+18\,\%$) within two weeks.

1. a) The consumer association denounces that there is an illegal price-fixing agreement (cartel), while the business association argues that it is the logical and independent response of efficient firms facing identical costs. Interpret the data and analyze which signs would support the thesis of tacit or explicit collusion versus the business association's stance.
2. b) Use game theory (the prisoner's dilemma) to predict what incentives one of the four chains has to covertly break this price level through personalized discounts on its mobile app, and what strategic response it would trigger in its rivals.
3. c) Design a public intervention proposal for this market that does not consist of setting price ceilings by law (justifying why the latter measure would cause shortages) and predict its impact on effective competition in the sector.

The figure orders the market structures according to the price-setting power of each firm, but one of the four boxes is empty.

1. a) Which market structure occupies the empty box? Reason your answer based on the features indicated below it.
2. b) Explain what the bottom arrow means and why the four structures are ordered in this way.

A city's drinking water supply is provided by a single concessionaire company.

1. a) What market structure is this? Justify your answer.
2. b) Explain why the firm in this structure is said to have power over the price, unlike a farmer in perfect competition.

A pharmaceutical laboratory is the only seller of a drug thanks to the patent. When it expires, several generic manufacturers enter the market and the price falls by $60\ \%$.

1. a) What market structure existed while the patent lasted and what type of barrier to entry is it?
2. b) How does the market structure change when the patent expires?
3. c) Explain why the State grants patents (and therefore temporary monopolies) even though monopolies make products more expensive.

The state public rail infrastructure manager retains exclusive ownership of the tracks and stations, but has liberalized passenger transport by allowing the entry of new private operators that pay a toll to run on them.

1. a) Economically justify, based on the behavior of fixed costs, average costs, and economies of scale, why it makes sense to maintain a natural monopoly in the physical infrastructure (tracks), but it is viable and efficient to introduce competition in the provision of the transport service (trains).
2. b) Following the entry of competitors, tickets on the busiest high-speed line have fallen by $35\,\%$, but medium-distance and rural lines still fail to attract private operators and accumulate losses. Explain this phenomenon using the concept of "cross-subsidization" and predict what territorial consequences applying solely free-market logic across the entire network would have.
3. c) Design an economic regulation mechanism that makes it possible to finance the maintenance of unprofitable but socially necessary lines without resorting to raising general taxes or driving new high-speed competitors out.