Economics. Dr. Pass Christopher

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      Fig. 29 Concentration ratio. Market A is here highly concentrated, with the four largest firms accounting for 80% of market sales, while market B has a relatively low level of concentration.

      concerted practica a situation defined by European Union and UK competition law as one where rival firms, without engaging in formal COLLUSION (see ANTI-COMPETITIVE AGREEMENT), nonetheless informally coordinate their behaviour in respect of selling prices and discounts, and engage in market-sharing and joint capacity adjustments.

      Under the EU’s Article 85 of the Treaty of Rome and the UK’s COMPETITION ACT 1998, concerted practices are prohibited outright. See COMPETITION POLICY (EU), COMPETITION POLICY (UK).

      concert party a group of individuals or firms that acts ‘in concert’, pooling its various resources in order to effect the TAKEOVER of a company. See TAKEOVER BID, CITY CODE.

      conciliation a procedure for settling disputes, most notably INDUSTRIAL DISPUTES, in which a neutral third party meets with the disputants and endeavours to help them resolve their differences and reach agreement through continued negotiation. In the UK the ADVISORY CONCILIATION AND ARBITRATION SERVICE acts in this capacity. See MEDIATION, ARBITRATION, INDUSTRIAL RELATIONS, COLLECTIVE BARGAINING.

      condition of entry an element of MARKET STRUCTURE that refers to the ease or difficulty new suppliers face in entering a market. Market theory indicates that, at one extreme, entry may be entirely ‘free’, with, as in PERFECT COMPETITION, new suppliers being able to enter the market and compete immediately on equal terms with established firms; at the other extreme, in OLIGOPOLY and MONOPOLY markets, BARRIERS TO ENTRY operate, which severely limit the opportunity for new entry. The significance of barriers to entry in market theory is that they allow established firms to secure a long-term profit return in excess of the NORMAL PROFIT equilibrium attained under fully competitive (‘free’ entry) conditions. See MARKET ENTRY, POTENTIAL ENTRANT, LIMIT PRICING.

      Confederation of British Industry (CBI) a UK organization that represents the collective interests of member companies in dealings with government and TRADE UNIONS.

      congestion charge see ROAD CONGESTION.

      conglomerate firm see FIRM.

      consolidated fund the UK government’s account at the BANK OF ENGLAND into which it pays its TAXATION and other receipts, and which it uses to make payments.

      consols abbrev. of consolidated stock; government BONDS that have an indefinite life rather than a specific maturity date. People acquire consols in order to buy a future nominal annual income without any expectation of repayment of the issue, though they can be bought and sold on the STOCK EXCHANGE. Because they are never redeemed by the government, the market value of consols can vary greatly in order to bring their EFFECTIVE INTEREST RATE in line with their NOMINAL INTEREST RATE. For example, £100 of consols with a nominal rate of interest of 5% would yield a return of £5 per year. If current market interest rates were 10%, then the market price of the consols would need to fall to £50 so that a buyer would earn an effective return on them of £5/£50 = 10%.

      consortium a temporary grouping of independent firms, organizations and governments brought together to pool their resources and skills in order to undertake a particular project such as a major construction programme or the building of an aircraft, or to combine their buying power in bulk-buying factor inputs.

      conspicuous consumption the CONSUMPTION of goods and services not for the UTILITY derived from their use but for the utility derived from the ostentatious exhibition of such goods and services.

      A person may buy and run a Rolls-Royce motor car not just as a vehicle for transportation but because it suggests to the outside world something about the owner. That person may wish to be seen as affluent or as a person of taste. This phenomenon (known as the VEBLEN EFFECT) can be viewed as an alternative to the more usual consumption theories where the quantity of a particular good varies inversely with its price (a downward-sloping DEMAND CURVE). A conspicuous consumption good may well have an UPWARD-SLOPING DEMAND CURVE so that the quantity demanded increases with its price.

      constant returns 1 (in the SHORT RUN) constant returns to the VARIABLE FACTOR INPUT that occur when additional units of variable input added to a given quantity of FIXED FACTOR INPUT generate equal increments in output. With an unchanged price for variable factor inputs, constant returns will cause the short-run unit variable cost of output to stay the same over an output range. See RETURNS TO THE VARIABLE FACTOR INPUT.

      2 (in the LONG RUN) constant returns that occur when successive increases in all factor inputs generate equal increments in output. In cost terms, this means the long-run unit cost of output remains constant so long as factor input prices stay the same. See MINIMUM EFFICIENT SCALE, ECONOMICS OF SCALE.

      consumer the basic consuming/demanding unit of economic theory. In economic theory, a consuming unit can be either an individual purchaser of a good or service, a HOUSEHOLD (a group of individuals who make joint purchasing decisions) or a government. See BUYER.

      consumer credit LOANS made available to buyers of products to assist them in financing purchases. Consumer credit facilities include HIRE PURCHASE, INSTALMENT CREDIT, BANK LOANS and CREDIT CARDS.

      Consumer Credit Act 1974 a UK Act that provides for the licensing of persons and businesses engaged in the provision of consumer CREDIT (specifically, moneylenders, pawnbrokers and INSTALMENT CREDIT traders – but not banks, which are covered by separate legislation) and the regulation of DEBTOR-CREDITOR contracts. The Act contains important provisions protecting creditors from ‘extortionate’ rates of interest. The Act is administered by the OFFICE OF FAIR TRADING in conjunction with the DEPARTMENT OF TRADE AND INDUSTRY. See CONSUMER PROTECTION, APR.

      consumer durables CONSUMER GOODS, such as houses, cars, televisions, that are ‘consumed’ over relatively long periods of time rather than immediately. See Fig. 158 (b) (PRODUCT LIFE CYCLE) for details of market penetration for a number of consumer durable products. Compare CONSUMER NONDURABLES.

      consumer equilibrium the point at which the consumer maximizes his TOTAL UTILITY or satisfaction from the spending of a limited (fixed) income. The economic ‘problem’ of the consumer is that he has only a limited amount of income to spend and therefore cannot buy all the goods and services he would like to have. Faced with this constraint, demand theory assumes that the goal of the consumer is to select that combination of goods, in line with his preferences, that will maximize his total utility or satisfaction. Total utility is maximized when the MARGINAL UTILITY of a penny’s worth of good X is exactly equal to the marginal utility of a penny’s worth of all the other goods purchased; or, restated, when the prices of goods are different, the marginal utilities are proportional to their respective prices. For two goods, X and Y, total utility is maximized when: