Chapter 11: Imperfect Competition Flashcards
Concentration ratio
The fraction of total market sales controlled by a specified number of the industry’s largest firms
Differentiated product
A group of commodities that are similar enough to be called the same product but dissimilar enough that all of them do not have to be sold at the same price
Price setter
A firm that faces a downward-sloping demand curve for its product (it chooses the price)
Monopolistic competition
Market structure of an industry in which there are many firms and freedom of entry and exit but in which each firm has a product somewhat differentiated from the others
Excess-capacity theorem
Firms in monopolistic competition produce on the falling portion of their LRAC curves
Oligopoly
An industry that contains two or more firms, at least one of which produces a significant portion of the industry’s total output
Strategic behaviour
Behaviour designed to take account of the reactions of one’s rival’s to one’s own behaviour
Co-operative (collusive) outcome
A situation in which existing firms co-operate to maximise their joint profits
Non-cooperative outcome
An industry outcome reached when firms maximise their own profit without co-operating with other firms
Game theory
The theory that studies decision making in situations in which one player anticipates the reactions of other players to its own actions
Nash equilibrium
An equilibrium that results when each player is currently doing the best it can
What behaviour does the establishing of a Nash equilibrium result in?
No firm has an incentive to alter its own behaviour to depart from the equilibrium
Collusion
An agreement among sellers to act jointly in their common interest
4 types of collusion
- Over
- Covert
- Explicit
- Tacit
3 types of entry barriers
- Brand proliferation
- Advertising
- Predatory pricing
