Chapter 13: Oligopoly and Strategic Behavior Flashcards
What is an Oligoploy?
oligopolyA market struc-ture in which a few firms sell either a standardized (homogeneous) or differentiated product, into which entry is difficult, in which the firm has limited control over product price because of mutual interde-pendence (except when there is collusion among firms), and in which there is typically nonprice competition.
What is a Homogeneous product and what is an example of it?
a product where buyers don’t see any real differences between products. ex; steel and aluminum markets.
What is a differentiated product and what is an example of it?
products that differ from each other. there are a lot of options for the consumer.
ex; automobiles, electronics equipment, and breakfast cereals
what is strategic behavior?
Self-interested economic actions that take into account the expected reactions of others
what is mutual interdependence in an oligopoly?
A situation in which a change in price strategy (or in some other strategy) by one firm will affect the sales and profits of another firm (or other firms). Any firm that makes such a change can expect its rivals to react to the change.
why is Control over price limited in an oligopoly market?
because there are just a few sellers in the market and rivals may respond in a way that would be detrimental to the firm that just changed the price.
what is the percentage for a four- firm concentration ration for a market to an oligopoly?
40%
when does Interindustry competition occur?
Interindustry competition occurs when industries like glass and plastic compete with each other. This competition is not reflected in their high 4-firm concentration ratios.
What is game theory?
Game theory is a method of analyzing situations in which the outcomes of your choices depend on the choices of other players in the game, and the outcomes of the other players depend on the choices which you make. There is a mutual interdependence.
In a game theory, there are players who make decisions, strategies which are…
the possible decisions a player can make.
what are payoffs in game theory?
are the outcomes of the strategies chosen.
Oligopolies have an incentive to do what?
cheat–> collusion
collusion refers to what?
Collusion is defined as cooperating with rivals and can benefit the firm. There is an incentive for firms to cheat on their agreement to collude because cheating can result in increased revenues for the cheater.
What is Kinked-Demand Theory and who is itnused for?
The kinked-demand model is used for non-collusive oligopolies to explain their behaviors and pricing strategies.
What do oligopolies assume in a Kinked-Demand theory?
-Match price reductions.
-Ignore price increases.
