One bus company runs every local bus route in a town. The council sets a maximum single fare that the company may charge. A second bus company already has the buses and the licence needed to start running routes in the town if the existing company's fares or service become unattractive to passengers.
Which judgement is most balanced?
The fare cap limits the company's fares, but the threat of entry is unlikely to affect how it treats passengers until a rival starts running buses.
A second operator could start running buses, but the company can still set any fare it likes because it is the only current operator.
The company can influence fares as the only current operator, but the fare cap and the threat of entry may limit how far it uses that power.
The company is the only current operator, but this gives it no power over fares because passengers can choose not to travel by bus.
149 exam-style questions on AQA GCSE Economics 1.5 Competitive and concentrated markets, covering 1.5.1a The range of market structures, 1.5.1b Distinguishing between market structures, 1.5.2a Characteristics of a competitive market, 1.5.2b How producers operate in competitive markets, 1.5.2c The economic impact of competition, 1.5.3a Characteristics of a non-competitive market, 1.5.3b How producers operate in non-competitive markets, 1.5.3c Monopoly and oligopoly, 1.5.4a The labour market and wage determination, and 1.5.4b Gross and net pay. Each one has a worked solution and a mark scheme showing where the marks go.