Chapter 9: MONOPOLISITIC COMPETITION + OLIGOPOLY Flashcards
Firms that charge market price because they have no incentive to charge more.
price-taker
Firms that can charge greater prices than their costs.
price-maker
A product that consumers perceive as distinctive in some way
differentiated product
Any action that firms do to make consumers think their products are different from their competitors’
product differentiation
Firms and organizations that fall between the extremes of monopoly and perfect competition
imperfectly competitive
Many firms competing to sell similar but differentiated products
monopolistic competition
When a few large firms have all or most of the sales in an industry
oligopoly
A type of oligopoly in which two firms dominate a market
duopoly
When two large firms that produce similar products make a formal agreement to come together and act like a monopoly
cartel
The markup divided by marginal costs; shows how much more profit firms are making than their marginal cost; (P - MC) / MC
markup ratio
A measure of how much profit a firm makes in excess of the opportunity cost of their investments.
rate of economic profit
A group of firms that collude to produce the monopoly output and sell at the monopoly price
cartel
When firms act together to reduce output and keep prices high
collusion
This strategy is triggered by one player defecting on an agreement; initial cooperation, then one player defects, then the other player defects in response
trigger strategy
A type of trigger strategy in which a player defects permanently if the other player defects even once
grim strategy
In game theory, when both players want to assure each other that they will use the strategies that result in the mutually beneficial outcome
assurance game
When one player defects, the other player defects for the next round, then both players return to cooperation; a type of trigger strategy that is less harsh than the grim strategy
tit for tat
A perceived demand curve that arises when competing oligopoly firms commit to match price cuts, but not price increases
kinked demand curve
A game in which the gains from cooperation are larger than the rewards from pursuing self-interest
prisoner’s dilemma
