Key terms - Oligopoly Flashcards
Antitrust law
Any law that regulates oligopolies and prevents them from becoming monopolies/behaving like monopolies.
Cartel
A group of firms colluding to limit output, raise price, and increase economic profit.
Collusive agreement
An agreement between two (or more) producers to form a cartel to restrict output, raise the price, and increase profits (illegal).
Contestable market
A market in which firms can enter and leave so easily that firms in the market face competition from potential entrants.
Cooperative equilibrium
The players make sure the monopoly profit is possible.
Dominant-strategy equilibrium
An equilibrium in which the best strategy for each player is to confess regardless of the strategy of the other player.
Duopoly
An oligopoly with two firms
Game theory
A set of tools for studying strategic behaviour.
Limit pricing
Sets the price at the highest level that inflicts a loss on the entrant.
Nash equilibrium
Player A takes the best possible action given the action of player B and player B takes the best possible action given the action of player A.
Oligopoly
A market structure in which: natural or legal barriers prevent the entry of new firms; a small number of firms compete.
Payoff matrix
A table that shows the payoffs for every possible action by each player for every possible action by each other player.
Predatory pricing
Setting a low price to drive competitors out of the market with the intention of setting a monopoly price when the competition has gone.
Resale price maintenance
A distributor’s agreement with a manufacturer to resell a product at or above a specified minimum price.
Strategies
All the possible actions of each player.
