Concentrated Markets

1. Concentrated Markets Unit 2 – Lesson 7

2. What is a Concentrated Market? • In a concentrated market structure there are fewer producers and they have more control over prices.  • This means that they are in a better position to keep prices and profits higher than in a competitive market.

3. How does a Concentrated Market work? • There are certain criteria that must be present in order for the producers to maintain a higher price than in a competitive market: • the producers must have an agreement on price and output • new producers, both foreign and domestic, must be kept out of the market • and demand for the product must be inelastic

4. How does a Concentrated Market work? • Because there are fewer companies in the market, there is less competition and it is easier to reach an agreement, formal or informal, on a higher price. • In this way the companies do not undercut each other and they all make more money.  • The quantity supplied may be controlled in order to maintain the higher price.

5. How does a concentrated market work? • In order for a price agreement to be maintained • the number of producers must be kept small • and new producers must be kept out of the market. • This is most easily achieved for products that are difficult to produce, have prohibitive start-up costs, or are already dominated by large powerful companies such as oil companies.

6. Concentrated Markets • In order to maintain higher prices and profits, the demand for the product must be inelastic with no close substitutes.  • Frequently concentrated markets are created or maintained by corporate mergers. If markets get too concentrated, it can be detrimental to consumers who are forced to pay higher prices.