ch 17 terms Flashcards
define oligopoly
market with few sellers offering similar/identical goods
depending on competitors
define concentration ratio
% of total output in industry by four biggest firms
define game theory
how ppl deal with strategic situations
make choice based on how others might react
define duopoly
oligopoly of 2 competitors
they could collude and form a cartel to essentially monopolize
define nash equilibrium
the best strategic choice to make based on other persons choice options
what happens to cartel according to cournot model
colluding firms in agreement to produce same #, but one cheats to experience more profit, and they both keep producing more
approaching competitive outcome
how does size of oligopoly impact market outcomes
more colluders: harder to agree
define output effect
if price > MC selling more units at same price w increase profit
define price effect
change in prices effect on income compared to output effect
what should do if output effect > price effect
increase production
because selling extra will increase quality sold more than the price will lower
what should do if output effect < price effect
maintain/decrease production
production # drops price more than profit from increased units sold
define prisoners dilemma
two ppl have to choose to stay silent and trust the other or rat them out
define dominant strategy
highest payoff regardless of other players move
what is a payoff matrix
box showing all outcomes of decisions from both players
prisoners dilemma of oligopoly
must choose to cheat agreement by producing more, or leaving it and trusting the other
both incentivized to cheat
define nash equilibrium
interacting economic actors choose best outcomes based on other strat
the “safe” option
define sequential game
smt like chess where you can react to opponents choice and punish them
define simultaneous game
both make/reveal choice at the same time
rock paper scissors
define collusive outcome
game theory
both experience higher benefit by collaborating rather the assuming the other will betray them and acting accordingly
how does non cooperative equilibrium affect society
CAN BE inefficient and makes players and society worse off
or can increase competition and benefit society
define tit for tat strat
in repeating games you can force collaboration, playing nice until they betray you and reacting until they go back to collusive choice
public policy to oligopolies
policymakers induce oligopolistic firms to compete for societal benefit
what does the
restraint of trade and competition act
do
all who conspire face repercussions
against cartels
define resale price maintenance
price fixing
manufacturer pressures retailer to sell at certain price
