ch 17 terms

Question 1

define oligopoly

Answer 1

market with few sellers offering similar/identical goods
depending on competitors

Question 2

define concentration ratio

Answer 2

% of total output in industry by four biggest firms

Question 3

define game theory

Answer 3

how ppl deal with strategic situations
make choice based on how others might react

Question 4

define duopoly

Answer 4

oligopoly of 2 competitors
they could collude and form a cartel to essentially monopolize

Question 5

define nash equilibrium

Answer 5

the best strategic choice to make based on other persons choice options

Question 6

what happens to cartel according to cournot model

Answer 6

colluding firms in agreement to produce same #, but one cheats to experience more profit, and they both keep producing more
approaching competitive outcome

Question 7

how does size of oligopoly impact market outcomes

Answer 7

more colluders: harder to agree

Question 8

define output effect

Answer 8

if price > MC selling more units at same price w increase profit

Question 9

define price effect

Answer 9

change in prices effect on income compared to output effect

Question 10

what should do if output effect > price effect

Answer 10

increase production
because selling extra will increase quality sold more than the price will lower

Question 11

what should do if output effect < price effect

Answer 11

maintain/decrease production
production # drops price more than profit from increased units sold

Question 12

define prisoners dilemma

Answer 12

two ppl have to choose to stay silent and trust the other or rat them out

Question 13

define dominant strategy

Answer 13

highest payoff regardless of other players move

Question 14

what is a payoff matrix

Answer 14

box showing all outcomes of decisions from both players

Question 15

prisoners dilemma of oligopoly

Answer 15

must choose to cheat agreement by producing more, or leaving it and trusting the other
both incentivized to cheat

Question 16

define nash equilibrium

Answer 16

interacting economic actors choose best outcomes based on other strat
the “safe” option

Question 17

define sequential game

Answer 17

smt like chess where you can react to opponents choice and punish them

Question 18

define simultaneous game

Answer 18

both make/reveal choice at the same time
rock paper scissors

Question 19

define collusive outcome
game theory

Answer 19

both experience higher benefit by collaborating rather the assuming the other will betray them and acting accordingly

Question 20

how does non cooperative equilibrium affect society

Answer 20

CAN BE inefficient and makes players and society worse off
or can increase competition and benefit society

Question 21

define tit for tat strat

Answer 21

in repeating games you can force collaboration, playing nice until they betray you and reacting until they go back to collusive choice

Question 22

public policy to oligopolies

Answer 22

policymakers induce oligopolistic firms to compete for societal benefit

Question 23

what does the
restraint of trade and competition act
do

Answer 23

all who conspire face repercussions
against cartels

Question 24

define resale price maintenance
price fixing

Answer 24

manufacturer pressures retailer to sell at certain price

Question 25

define predatory pricing

Answer 25

firms with low market power charge low at a loss to punish competition

Question 26

define tying
price fixing

Answer 26

offering two products only offered together under one price
ex. wicked and wolverine tickets

Question 27

what is the general consensus on price fixing agreements

Answer 27

should be illegal