Chapter 15

Question 1

Oligopoly

Answer 1

An industry with only a small number of producers

Question 2

Imperfect competition

Answer 2

When no one firm has a monopoly, but producers nonetheless realize they can affect the market price

Question 3

duopoly

Answer 3

An oligopoly consiting of two firms

Question 4

Collusion

Answer 4

When sellers cooperate to raise their joint profits

Question 5

Cartel

Answer 5

An agreement among several producers to obey output restrictions in order to increase their joint profits

Question 6

noncooperative behavior

Answer 6

When firms ignore the effects of their actions on each others profits

Question 7

Interdependence

Answer 7

When a firm’s decision significantly effects the profits of other firms in the industry

Question 8

Game theory

Answer 8

The study of behavior in situations of interdependence

Question 9

Herfindahl-Hirschman Index

Answer 9

The square of each firm’s share of market sales summed over the firms in the industry

Question 10

HHI below 1,000

Answer 10

strongly competitive market

Question 11

HHI between 1,000 and 1,800

Answer 11

somewhat competitive market

Question 12

HHI over 1,800

Answer 12

oligopoly

Question 13

exclusive dealing

Answer 13

When a firm makes an agreement with retailers to sell its products exclusively

Question 14

Quantity competition or Cournot behavior

Answer 14

When firms are restricted in how much they can produce, it is easier for them to avoid excessive competition therby pricing above marginal cost and earning profits

Question 15

Price competition or Bertand behavior

Answer 15

When firms produce perfect substitutes and have sufficient capacity to satisfy demand when price is equal to marginal cost, then each firm will be compelled to engage in competition by undercutting it’s rival’s price until the price reaches marginal cost

Question 16

Bertrand behavior results in:

Answer 16

zero profits

Question 17

payoff

Answer 17

the reward recieved by a player in a game

Question 18

dominant strategy

Answer 18

When it is the player’s best action regardless of the action taken by the other player

Question 19

Nash equilibrium (noncooperative equilibrium)

Answer 19

The result when each player in a game chooses the action that maximizes his or her payoff given the actions of other players

Question 20

strategic behavior

Answer 20

When a firm attempts to influence the future behavior of other firms

Question 21

tacit collusion

Answer 21

When firms limit production and raise prices in a way that raises each others’ profits, even though they have not made any formal agreement

Question 22

Anti-trust policy

Answer 22

Efforts undertaken by the government to prevent oligopolistic industries from becoming or behaving like monopolies

Question 23

What is the normal state of oligopoly?

Answer 23

Tacit collusion

Question 24

price war

Answer 24

occurs when tacit collusion breaks down and prices collapse

Question 25

product differentiation

Answer 25

An attempt by a firm to convince buyers that its product is different from the products of other firms in the industry

Question 26

price leadership

Answer 26

One firm sets its price first, and other firms then follow

Question 27

Nonprice competition

Answer 27

Using advertising and other means to try to increase their sales

firms that have a tacit understanding not to compete on price often engate in this