Abnormal profit

Profit in excess of normal profit - also known as supernormal profit or monopoly profit. Abnormal profits may be maintained in a monopolistic market in the long run because of barriers to entry

Allocative efficiency

Producing goods and services demanded by consumers at a price that reflect the marginal cost of supply

Anti-competitive behaviour

Strategies designed to limit the degree of competition inside a market and reinforce the monopoly power of established businesses

Collusion

Collusion takes place when rival companies cooperate for their mutual benefit. When two or more parties act together to influence production and/or price levels, thus preventing fair competition. Common in an oligopoly / duopoly

Competition and Markets Authority (CMA)

The CMA has been created by unifying the Competition Commission with most functions of the Office of Fair Trading – tackling price fixing, monopolies and unfair mergers

Competition Policy

Government policy which seeks to promote competition and efficiency in different markets and industries

Complex monopoly

A complex monopoly exists if at least one quarter (25%) of the market is in the hands of one or a group of suppliers who, deliberately or not, act in a way designed to reduce competitive pressures within a market

Concentration ratio

Measures the proportion of an industry's output or employment accounted for by the largest firms. When the concentration ratio is high, an industry has moved towards a monopoly, duopoly or oligopoly. Share can be by sales, employment or any other relevant indicator.

Deregulation

Opening up of markets by reducing barriers to entry. The aim is to increase supply, competition and innovation and bring lower prices for consumers

Dominant market position

A firm holds a dominant position if it can operate within the market without taking full account of the reaction of its competitors or final consumers

Herfindahl Index

A measure of market concentration. The index is calculated by squaring the % market share of each firm in the market and summing these numbers

Hit-and-run competition

When a business enters an industry to take advantage of temporarily high (supernormal) market profits. Common in highly contestable markets

Horizontal collusion

Where there is agreement between firms at the same stage of the production process to charge prices above the competitive level

Light-touch regulation

An approach of government to managing business behaviour - prefers to "influence" rather than "legislate/regulate" Carrot or stick?

Limit pricing

When a firm sets price low enough to discourage new entrants into the market

Price capping

A government-imposed limit on the price charged for a product - otherwise known as price capping. Often introduced as a way of controlling the monopoly pricing power of businesses with a large amount of market power

Price ceiling

Law that sets or limits the price to be charged for a particular good

Private Finance Initiative

The PFI is a means of obtaining private funds for public sector projects. PFI is when major infrastructure/buildings/project/large scale contracts are issued by governments to private firms

Privatization

The sale of state-owned companies to the private sector, normally through a stock market listing. The opposite of nationalization

Procurement collusion

Where companies illegally bid for large contracts by rigging bids to decide which one of them gets the contract in advance.

Public utility

A company that provides public services, such as power, water and telecommunications. Regulated by government, not necessarily state-owned

Regulated industry

An industry that is closely controlled by the government

Regulatory capture

When industries under the control of a regulatory body appear to operate in favour of the vested interest of monopoly producers rather than consumers

Tacit collusion

Where firms undertake actions that are likely to minimize a competitive response, e.g. avoiding price cutting or not attacking each other's market. Tacit collusions is when firms co-operate but not formally, e.g. price leadership, or quiet or implied co-operation, secret, unspoken cooperation

Takeover

Where one business acquires a controlling interest in another business. Takeovers are much more common than mergers.

Vertical integration

Vertical Integration involves acquiring a business in the same industry but at different stages of the supply chain

Welfare economics

The study of how an economy can best allocate scarce resources to maximise the welfare of its citizens

Whistle blowing

When one or more agents in a collusive agreement report it to the authorities

X-inefficiency

A lack of real competition may give a monopolist less of an incentive to invest in new ideas or consider consumer welfare

Zero-sum game

An economic transaction in which whatever is gained by one party must be lost by the other. In a zero sum game, the gain of one player is exactly offset by the loss of the other players. If one business gains market share, it must be at the expense of the other firms in the market