Chapter 13: Oligopoly and Strategic Behavior

Question 1

form of market structure that exists when a small number of firms sell a differentiated product in a market with high barriers to entry

Answer 1

oligopoly

Question 2

an agreement among rival firms that specifies the price each firm charges and the quantity it produces

Answer 2

collusion

Question 3

group of two or more firms that act in unison

Answer 3

cartel

Question 4

attempt to prevent oligopolies from acting like monopolies

Answer 4

antitrust laws

Question 5

a market situation where the actions of one firm have an impact on the price and output of its competitors

Answer 5

mutual interdependence

Question 6

occurs when all economic decision-makers opt to keep the status quo

Answer 6

Nash equilibrium

Question 7

reflects how a change in price affects the firm’s revenue

Answer 7

price effect

Question 8

occurs when a change in price affects the number of consumers in a market

Answer 8

output effect

Question 9

branch of mathematics that economists use to analyze the strategic behaviors of decision-makers

Answer 9

game theory

Question 10

occurs when decision-makers face incentives that make it difficult to achieve mutually beneficial outcomes

Answer 10

prisoner’s dilemma

Question 11

exists when a player will always prefer one strategy, regardless of what his opponent chooses

Answer 11

dominant strategy

Question 12

illustrates all the possible outcomes in a sequential game

Answer 12

decision tree

Question 13

long-run strategy that promotes cooperation among participants by mimicking the opponent’s most recent decision with repayment in kind

Answer 13

tit-for-tat

Question 14

in game theory, the process of deducing backward from the end of a scenario to infer a sequence of optimal actions

Answer 14

backward induction

Question 15

the first federal law limiting cartels and monopolies

Answer 15

Sherman Antitrust Act (1890)

Question 16

targets corporate behaviors that reduce competition

Answer 16

Clayton Act (1914)

Question 17

occurs when firms deliberately set their prices below AVCs with the intent of driving rivals out of the market

Answer 17

predatory pricing

Question 18

occurs when the number of customers who purchase or use a good influences the quantity demanded

Answer 18

network externality

Question 19

the costs incurred when a consumer changes from one supplier to another

Answer 19

switching costs