chapter 11 Flashcards
1
Q
imperfect competition
A
- between perfectly competitive and monopoly
- monopolistic competition: large number of firms that produce slightly different products that are close subs
2
Q
oligopoly
A
- industries with few large firms
- produce homogeneous products, limited control over price
- mutual interdependence
- strategic behaviour
- hard to enter market
- sometimes mergers result and get more monopoly power
3
Q
industrial concentration
A
- industry with few large firms
- measured by concentration ratio
4
Q
concentration ratio
A
- fraction of total market sales controlled by specific number of industry’s largest firms
- four firm ratio: output of four largest firms/total output in industry
5
Q
firms choose their products
A
- decide characteristics of new products to design and sell
- firms sell array of differentiated products: similar enough to be called the same but disimmilar enough to be sold at different prices
6
Q
firms choose their prices
A
- when products are not identical they must decide on a price to set
- price setters
- downward sloping demand
7
Q
typical behaviour of firms in imperfect competition
A
- spend lots on advertising
- engage in a variety of forms of non price competition like offering competing standards of quality and product guarantees
- many firms engage in activities that appear to be designed to hinder entry of new firms preventing erosion of existing profits
8
Q
assumptions of monopolistic competition
A
- each firm produces own version of differentiated product, faces demand curve that is highly elastic even though neg slope bc of close subs
- all firms have same technology and same cost curves
- industry contains so many firms that each one ignores competitors when making price and output decisions
- firms free to enter and exit industry
9
Q
profits of monopolistic competition theory
A
- in short run, downward demand curve
- maximizes profits at quantity where MC = MR
- possible to break even, make positive or negative profits
- when making positive profits there is an incentive for firms to enter
- in long run entry of new firms shifts demand curve to left until profits are eliminated
10
Q
dilemma of oligopoly
A
- if firms cooperate, can maximize joint profits
- can reach cooperative (collusive) outcome
- industry outcome reached when firms proceed by calculating only their own gains without cooperative: non cooperative outcome
11
Q
game theory
A
- theory that studies decision making in situations where one player anticipates reactions of other players to its own actions
12
Q
prisoners dilemma
A
- potential conflict between self interest of individuals and broader interest of communities
13
Q
dominant strategy
A
- strategy that yields higher payoff regardless of what other players choose
- each player has one - dilemma is that payoffs are smaller than they would be if each player had played a dominant strategy
14
Q
dominated strategy
A
- any other strategy available to player that has dominant strategy
15
Q
what if both follow dominant strategy
A
both will do worse
16
Q
nash equilibrium
A
- any combination of strategies where each players strategy is best choice given other players strategies
