CHAPTER 49 OLIGOPOLY Flashcards
Cartel
A formal agreement between firms to limit competition in the market, for example by limiting output in order to raise prices.
Collusion
Collective agreements, either formal or tacit, between firms that restrict competition.
Collusive oligopoly
A market with a high concentration ratio where a few interdependent firms cooperate, either formally or tacitly, to restrict competition.
Concentrated market
A market where most of the output is produced by a few firms and where therefore the concentration ratio is high.
Duopoly
An industry where there are only two firms.
Game theory
The analysis of situations in which players are interdependent.
Market conduct
The behaviour of firms, such as pricing policies, promotion of products, branding and collusion with other firms.
Marketing mix
Different elements within a strategy designed to create demand for a product and profits for a firm.
Non-collusive or competitive oligopoly
When firms in an oligopolistic industry compete amongst themselves and there is no collusion.
Oligopoly
A market structure where there is a small number of firms in the industry and where each firm is interdependent with one another, creating uncertainty. Barriers to entry are likely to exist.
Overt or formal collusion
When firms make agreements among themselves to restriction competition, typically by reducing output, raising prices and keeping potential competitors out of the market; cartels are one example of formal collusion.
Payoff matrix
In game theory, shows the outcomes of a game for the players given different possible strategies.
Predatory pricing
A pricing strategy where a firm lowers its prices when a new entrant comes into the market in order to force the competitor out of the market, and then putting prices back up again once this objective has been achieve.
Price agreement
A type of formal collusion where two or more firms arrange to fix prices of their products.
Price follower
A firm which sets its price by reference to the prices set by the price leader in a market.
Price leadership
When one firm, the price leader, sets its own prices and other firms in the market set their prices in relationship to the price leader.
Price war
A situation where several firms in a market repeatedly lower their prices to outcompete others firms; the objective may be to gain or defend market share.
Prisoner’s dilemma
A game where, given that neither player knows the strategy of the other player, the optimum strategy for each player leads to a worse situation than if they had known the strategy of the other player and been able to cooperate and co-ordinate their strategies.
Tacit or informal collusion
When firms collude without any formal agreement having been reached and where there is no explicit communication between firms and strategies; an example is price leadership.
