Ch.14 Oligopoly

Question 1

imperfect competition

Answer 1

firms compete but also have market power

Question 2

oligopoly

Answer 2

industry with only a few sellers, caused by increasing returns to scale, price effect is smaller

Question 3

HHI

Answer 3

2500 oligopoly

Question 4

collusion

Answer 4

cooperating to raise joint profits

Question 5

cartel

Answer 5

arrangment between producers that determines how much they will produce, unstable

Question 6

game theory

Answer 6

study of behavior in interdependent situations

Question 7

prisoner’s dilema

Answer 7

each player has an incentive to cheat but cheating will make both worse off

Question 8

dominant strategy

Answer 8

player’s best action regardless of actions taken by other players

Question 9

nash (noncooperative) equilibrium

Answer 9

each player chooses dominant strategy

Question 10

strategic behavior

Answer 10

sacrificing short-run profit for better future outcome

Question 11

tit-for-tat

Answer 11

start by behaving cooperatively, then do what other player did in previous round

Question 12

tacit collusion

Answer 12

firms limit production and raise prices to help other firms without formal agreement

Question 13

sherman antitrust act 1980

Answer 13

criminalized formation of trusts

Question 14

clayton act 1914

Answer 14

protect consumer, layout specifics

Question 15

factors that complicate cooperation

Answer 15

less concentration of market
complex products and pricing
competing interests
bargaining power of buyers

Question 16

illegal practices

Answer 16

resale price maintenance (requires certain price)
predatory pricing (pricing below costs)
tie-in-sales (forcing sale of two goods together that could each have a market of their own)

Question 17

price leaderhsip

Answer 17

one firm sets a price, leads to nonprice competition