APEC – Exam 2 – Agricultural and Applied Economics – study
material
Horizontal Competition - correct answer ✔✔-Rivalry between firms at the same
market level
-Ex. Coke and Pepsi
Vertical Competition - correct answer ✔✔-Competing BETWEEN market levels
to divide the consumer's food dollar
--The distribution of money down the FWR market and competing for more
money in the distribution
Theory of Industrial Organization (SCP) - correct answer ✔✔1. Industry
Structure- number of firms, degree of differentiation, entry conditions
2. Market Conduct- price, product, and promotional strategies (4Ps)
3. Determine Performance
-SCP underlines most government policy towards food industry
Perfect Competition Conditions - correct answer ✔✔--Large number of sellers
--Homogeneous product- no product differentiation
--Free entry and exit from market
--All have perfect info about prices/market
--Price free from restriction/no collusion
--Examples: most ag commodities but no product fits this definition perfectly
,Perfect Competition Results - correct answer ✔✔-Firms are price takers (no
price decisions to make)
-Incentive to lower costs to increase profits
--Helps operational efficiency
-Perpetual cost-price squeeze
-Firms do not view each other as rivals
-A firm doesn't try to influence demand
--Recall free-rider problem
-Best for efficiency
Monopoly/Monopsony - correct answer ✔✔-Monopoly- market with single
seller
--Ex. Public utilities
-Monopsony- market with a single buyer
--Ex. military or government for aircraft
1. Conditions: entry difficult or blocked
2.Results
-Firm is price setter
--Market demand and firm demand curve are identical
-Government often has to be involved
--Regulate, create (granting patents), and own
-Poor efficiency
Duopoly - correct answer ✔✔-2 companies in control of a market
-Similar conditions and results to monopoly
, 1. Conditions: entry difficult or blocked
2.Results
-Firm is price setter
--Market demand and firm demand curve are identical
-Government often has to be involved
--Regulate, create (granting patents), and own
-Poor efficiency
Oligopoly - correct answer ✔✔Oligopoly- market with few (3) sellers
Oligopsony- market with few buyers
1. Conditions
-Products are similar or differentiated
-Entry difficult
--Usually large operations, start up expensive
-Examples
--Food processors, wholesalers
---Oligopolies to retailers
---Oligopsonies to farmers
2. Results
-Substantial say on price
--Limited by competitor prices
-Use of non-price competition is common
-Concerns of cartels and firms becoming price leaders
material
Horizontal Competition - correct answer ✔✔-Rivalry between firms at the same
market level
-Ex. Coke and Pepsi
Vertical Competition - correct answer ✔✔-Competing BETWEEN market levels
to divide the consumer's food dollar
--The distribution of money down the FWR market and competing for more
money in the distribution
Theory of Industrial Organization (SCP) - correct answer ✔✔1. Industry
Structure- number of firms, degree of differentiation, entry conditions
2. Market Conduct- price, product, and promotional strategies (4Ps)
3. Determine Performance
-SCP underlines most government policy towards food industry
Perfect Competition Conditions - correct answer ✔✔--Large number of sellers
--Homogeneous product- no product differentiation
--Free entry and exit from market
--All have perfect info about prices/market
--Price free from restriction/no collusion
--Examples: most ag commodities but no product fits this definition perfectly
,Perfect Competition Results - correct answer ✔✔-Firms are price takers (no
price decisions to make)
-Incentive to lower costs to increase profits
--Helps operational efficiency
-Perpetual cost-price squeeze
-Firms do not view each other as rivals
-A firm doesn't try to influence demand
--Recall free-rider problem
-Best for efficiency
Monopoly/Monopsony - correct answer ✔✔-Monopoly- market with single
seller
--Ex. Public utilities
-Monopsony- market with a single buyer
--Ex. military or government for aircraft
1. Conditions: entry difficult or blocked
2.Results
-Firm is price setter
--Market demand and firm demand curve are identical
-Government often has to be involved
--Regulate, create (granting patents), and own
-Poor efficiency
Duopoly - correct answer ✔✔-2 companies in control of a market
-Similar conditions and results to monopoly
, 1. Conditions: entry difficult or blocked
2.Results
-Firm is price setter
--Market demand and firm demand curve are identical
-Government often has to be involved
--Regulate, create (granting patents), and own
-Poor efficiency
Oligopoly - correct answer ✔✔Oligopoly- market with few (3) sellers
Oligopsony- market with few buyers
1. Conditions
-Products are similar or differentiated
-Entry difficult
--Usually large operations, start up expensive
-Examples
--Food processors, wholesalers
---Oligopolies to retailers
---Oligopsonies to farmers
2. Results
-Substantial say on price
--Limited by competitor prices
-Use of non-price competition is common
-Concerns of cartels and firms becoming price leaders
