Competition, firm size and monopoly
| English | 中文 | Pinyin |
|---|---|---|
| niche market/niːʃ ˈmɑːkɪt/ | 利基市场 | lì jī shì chǎng |
| barrier to entry/ˈbærɪə tʊ ˈentri/ | 进入壁垒 | jìn rù bì lěi |
A decision you can investigate
- A small repair shop knows its customers well. A large chain buys parts cheaply and can fund new equipment.
- Being large or small creates opportunities and constraints, not a guaranteed performance ranking.
Build the explanation
- Competition can encourage lower prices, efficiency, quality, choice and innovation, but pressure can also reduce margins or duplicate costly investment. Large firms may access finance, spread risk and exploit scale; small firms can adapt to niches and provide personal service.
- Growth depends on finance, regulation, market demand, economies and acquisition opportunities. Firms may stay small because the market is limited, finance unavailable or owners value independence. Monopoly involves one dominant supplier, often protected by legal rights, patents, technology, marketing strength or high start-up costs.
Work through the evidence
- The repair chain’s bulk discount may lower average parts cost, but a small specialist can compete through expertise and flexible appointments. A rural market may not support a second large branch.
- A single broadband supplier may charge more when customers lack alternatives. Its scale may also support infrastructure investment. Compare its costs, service standards and barriers instead of inferring price or profit from size alone.
Which is a possible monopoly entry barrier?
A legal right can restrict potential entrants.
Test the limits
- Market power does not guarantee profit: demand and costs matter. A dominant firm may innovate, while weak competitive pressure may also reduce its incentive to improve.
- Competition regulation can protect consumers, control mergers and limit abuse of market power. It should be evaluated against the specific market, not treated as a ban on every large firm.
Which claim about large firms is justified?
Size affects opportunities and costs without guaranteeing an outcome.
A firm with monopoly power is guaranteed a high profit.
It may face weak demand or high costs even with limited competition.
Apply and explain your answer
- Why could a repair firm rationally choose to stay small?
- Its niche market 利基市场 or owner’s objectives may favour flexible personal service rather than expansion.
Why can competition help consumers?
Competitive pressure can improve value, but its effects remain contextual.
Use the terms precisely
- barrier to entry 进入壁垒: An obstacle making it difficult for new firms to enter a market.
- niche market: A specialized part of a market serving particular customer needs.
Match the terms to their meanings.
Each term describes a specific mechanism in this lesson.
The repair chain’s bulk discount may lower average parts cost, but a small specialist can compete through expertise and flexible appointments. A rural market may not support a second large branch. A single broadband supplier may charge more when customers lack alternatives. Its scale may also support infrastructure investment. Compare its costs, service standards and barriers instead of inferring price or profit from size alone.
Market power does not guarantee profit: demand and costs matter. A dominant firm may innovate, while weak competitive pressure may also reduce its incentive to improve. Competition regulation can protect consumers, control mergers and limit abuse of market power. It should be evaluated against the specific market, not treated as a ban on every large firm.
Competition can encourage lower prices, efficiency, quality, choice and innovation, but pressure can also reduce margins or duplicate costly investment. Large firms may access finance, spread risk and exploit scale; small firms can adapt to niches and provide personal service.