Chapter 17 Flashcards
Oligopoly
Oligopoly
A market structure where a few large firms dominate the market, offering identical or similar products, with significant interdependence in decision-making.
Characteristics of Oligopoly
- Few dominant firms, 2. Barriers to entry, 3. Interdependence, 4. Potential for collusion or strategic competition.
Collusion
An agreement among firms in an oligopoly to set prices or production levels to maximize joint profits.
Cartel
A formal group of firms that collude to act as a monopoly, setting prices and output collectively; an example is OPEC.
Nash equilibrium
A situation in which each firm chooses its best strategy, given the strategies chosen by other firms, with no incentive to deviate.
Game theory
A mathematical framework used to analyze strategic interactions where the outcome for each participant depends on the actions of others.
Prisoner’s dilemma
A game theory example where mutual cooperation would yield the best outcome, but self-interest leads to suboptimal results for both.
Dominant strategy
A strategy that is best for a firm, no matter what strategies other firms choose.
Payoff matrix
A table showing the potential outcomes for each firm in an oligopoly based on their strategies and those of competitors.
Duopoly
The simplest form of oligopoly, consisting of only two firms.
Output vs Price effect
Output Effect: Selling more increases revenue.
Price Effect: Increasing output reduces price, lowering revenue per unit.
Factors preventing collusion
- Legal restrictions (antitrust laws), 2. Large number of firms, 3. Product differentiation, 4. Cheating incentives.
Resale price maintanence
A controversial practice where a manufacturer requires retailers to sell a product at a specified price to avoid price competition among retailers.
Tying
A strategy where a firm sells one product only on the condition that the buyer also purchases another product.
