5 - concentrated markets: theory of oligopoly Flashcards
oligopoly
where a few large firms have the majority of the market share
concentration ratio
the proportion of the market share held by the dominant firms
predatory pricing
setting a price that may bankrupt a competitor firm in order to try to take it over
integration
combining with other firms
interdependent
where actions by one firm will have an effect on the sales and revenue of other large firms in the market
price war
where the firms competitively lower prices to increase their market share
reactive behaviour
the action taken by firms in response to a change in behaviour of a competitor
kinked demand curve
a theoretical approach that endeavours to analyse the reasons for price stability in oligopoly
brand loyalty
a measure indicating the degree to which consumers will purchase a firm’s product rather than a competing firm’s product
discontinuous marginal revenue curve
region over which a change in marginal costs will not lead to a change in the firm’s price and output levels
game theory
an analysis of how games players react to changing circumstances and plan their response
zero sum game
where a gain by one player is matched by a loss by another player
risk averse
where one party does not take any action that might promote retaliatory activity by another party
collusion
where firms cooperate in their pricing and output policies
prisoners’ dilemma
where prisoners both choose the worst option
nash equilbrium
where the optimum strategy is to maintain curent behaviour
restrictive agreements
where firms collude to indulge in anti-competitive policy
joint profits
where firms agree to maximise shared rather than their individual profits
cartel
a group of firms working together, or colluding
price leader
a firm that establishes the market price that all other firms in the agreement follow
barometric price leadership
a firm whose price changes are accepted as they are adroit at interpreting market conditions
parallel pricing
where firms charge identical prices
tatic collusion
where firms have reached an ‘agreement’ as to each others behaviour as a result of repeated observations over time
menu costs
the time and money spent by businesses in changing thier prices in line with inflation
