A Level Economics AQA Practice Exam

In the UK, what is the threshold market share percentage that indicates a firm has monopoly power?

1. 10%

2. 25%

3. 30%

4. 50%

The correct answer is: 25%

In the context of market structure and competition, a firm is generally considered to hold monopoly power if it has a significant market share that allows it to influence market prices and output levels. In the UK, the threshold market share that typically indicates a firm has monopoly power is set at 25%. This benchmark suggests that a firm attaining this level of market share can operate without substantial competition, potentially leading to price-setting behavior that differs from more competitive market conditions. The rationale behind identifying 25% as the threshold is rooted in antitrust considerations. Authorities like the Competition and Markets Authority (CMA) examine firms with market shares above this level for potential monopolistic practices or abuse of market power. This percentage is a crucial indicator because it often signifies that the firm can influence prices and restrict output to increase profits, impacting consumer choices and market dynamics. Understanding this concept is vital for analyzing market structures and assessing competition policies in economics, particularly in relation to the regulation of monopolies and enhancing market efficiency.