chapter 15: Flashcards
What is an ologopoly?
An industry that is dominated by a few firms:
Ex: like airline companies
What are characteristics of an ologopoly?
- markets dominated by small firms.
- High barriers to entry
- ## great deal of firm independence related to price.
What type of market has a higher price than an oligopoly?
Monopoly
What type of market has a lower price than an oligopoly?
Competitive markets
What is a cartel?
An oligopoly that works together to reduce supply, raise prices. and increase prices (group of suppliers that work together in an attempt to act like a monopoly)
How do cartels try to increase their profits?
They all collectively reduce their quantities.
What is an example of a cartel?
The Organization of the Petroleum Exporting Countries (OPEC), an oil cartel whose members control 44% of global oil production and 81.5% of the world’s oil reserves.
What is the key take away from game theory?
Steal!!!!
What is the prisoner dilema?
A situation in which the pursuit of the individual interest leads to a group outcome that is in the interest of no one.
What is the dominant strategy?
A strategy that has a higher payoff no matter what the other player does.
Collusion?
Two companies settling on a price to maximize their profits.
Ex: several high profile tech companies agree to keep quantity down to keep prices up.
Tacit Collusion?
When firms limit competition with one anther but do so without explicit agreement.
Ex: two firms may decide to avoid price cutting or not attacking each other’s market share.
What does the supply/demand curve look like when firms drop their prices below market value?
The demand curve becomes inelastic.
Barriers to entry?
Factors that increase the cost for new firms to enter the industry.
