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Microeconomics > Chapter 11: Oligopoly > Flashcards

Chapter 11: Oligopoly Flashcards

1
Q

What is an Oligopoly?

A

A handful of firms producing all or most of a good or services supply

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2
Q

What is a Contestable Market?

A

A imperfect competitive industry that can be entered when prices and profits increase

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3
Q

What is a concentration ratio?

A

How much output is produced by an industries largest firms

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4
Q

An Oligopolist is …

A

a firm in a oligopoly

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5
Q

Market Share

A

percent of total market output of a firm

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6
Q

Product Differentiation

A

Features that make a product more unique or appealing than another

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7
Q

A Payoff Matrix

A

A table representing the risks and rewards of an alternative decision

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8
Q

Game Theory

A

Study of strategic decision making between firms

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9
Q

Price fixing occurs when..

A

Firms agree on what price a good sells at

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10
Q

Price leadership is…

A

A pattern allowing a firm to establish a market price for all firms

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11
Q

A Cartel is..

A

A group of firms agreeing to fixed prices and product output

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12
Q

Predatory Pricing is

A

reducing prices in order to drive out competition

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13
Q

The Herfindahl-Hirshman Index…

A

measures the industry concentration of firms, and their size

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14
Q

Determinants of Market Power include..

A

Number of Producers, size of firms, barriers of entry, and availability of substitues

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15
Q

What does a Concentration Ratio Measure?

A

Market Power

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16
Q

At what percent of concentration would a industry be considered a oligopoly?

A

60% or above

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17
Q

How would you measure Market Power?

A

by an industrys concentration ratio, or firm size

18
Q

An Increase in Sales at Prevailing Market Price

A

reduces shares of the other oligopolists

19
Q

An increase in sales at reduced prices..

A

expands the total market sales w/o reducing other oligopolies sales

20
Q

In what ways can a oligopoly retaliate?

A

Increased Advertising, and Price Cuts

21
Q

Price cuts force competition to what?

A

Cut prices, or accept a reduced market share

22
Q

What would happen if a firm uses price cuts to increase their market share?

A

a general reduction in the market price

23
Q

What does the Kinked Demand Curve demonstrate?

A

the interdependent behavior of oligopolys

24
Q

The Shape of a Oligopoly’s demand curve depends on what?

A

the responses of its rivals to a change in the price of its own output

25
Q

Demand curves will be kinked if what happens?

A

Oligopoly rivals match price reduction

26
Q

What happens when rivals don’t match a reduction in price?

A

Sales would increase dramatically to the firm with the lowest priced good

27
Q

What would happen if rivals match a reduction in price?

A

Monthly sales of the lowest-priced good would expand slightly

28
Q

What would happen if rivals don’t match a increase in price?

A

Nothing

29
Q

When would a rival oligopoly match a price increase?

A

when an industry wide price increase occurs

30
Q

What would happen if rivals increased their prices?

A

Rivals may increase prices to gain additional prices; but risk losing demand

31
Q

“Game Theory”

A

Oligopolists must consider potential responses of rivals when coming up with price / output strategies

32
Q

Payoff Matrix

A

Summarizes profit consequences depending on a scenario

33
Q

How is Expected profit (or losses) found?

A

by using a risk assessment

34
Q

What prevents oligopolys from taking price rivalry too far?

A

threats of mutual destruction

35
Q

Expected Payoff Formula

A

[ Probability of Matching x Loss from cut ] + [ Probability of Not Matching x Gain from cut]

36
Q

Profits are maxed at what rate of output (Oligopoly)

A

MC = MR

37
Q

Oligopolys try and mimic

A

Monopolys

38
Q

How do Oligopolist avoid self-destructive behavior?

A

Maintaining maximized output and prices, and ensuring firms are content with their market shares

39
Q

How do companys attain price leadership?

A

by reading industry publications and shifting- prices as needed

40
Q

Oligopolys become cartels when what occurs..

A

production-sharing agreements

41
Q

Market Share Allocation Formula

A

revenue / total sales

42
Q

What barriers to entry do Oligopolists use to keep competitors out?

A

Patents, Distribution Control, Input Lock-ups, Mergers, Acquisition, Government Regulation,Non-Price Competition, Training, and Network Economies

Microeconomics (6 decks)

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