Oligopoly

Question 1

Concentration Ratio

Answer 1

measures industry concentration, the percentage of all sales contributed by the leading 4 or 8 firms

Question 2

Mergers (Horizontal and Vertical)

Answer 2

joining of firms;
vertical: bringing other parts of the same industry together, all parts of the process
horizontal: buying a similar company (t-mobile and AT&T)

Question 3

HHi Index

Answer 3

It allows us to determine the size variation.
Lower score means firm size is more equally distributed (closer in sales shares size)

square each sales share, then add them together.

Question 4

Opportunistic Behavior

Answer 4

Actions that focus on short-run gains

Question 5

Tit-for-tat

Answer 5

all players must cooperate

Question 6

Cartel

Answer 6

multiple companies that agree to set common prices and quotas to prevent competition

Question 7

Collusive Cartel

Answer 7

• members face the temptation to cheat on a cartel agreement. If someone cheats, everyone loses.
  ENFORCING CARTEL RULES:
  -small # of firms
  -relatively undifferentiated products
  -easily observable prices
  -little variation in prices

Question 8

Network Effect

Answer 8

someone being influenced by word of mouth.
Positive market feedback: in favor of the product
Negative market feedback: out of favor

Question 9

Graphs

Answer 9

Higher the price, lower the demand and vice-versa

Question 10

Two-sided market

Answer 10

Two separate groups of customers; the platform firm provides a good or service that links two groups together.
4 types of two-sided markets
- audience-seeking
- matchmaking
- transaction-based
-shared-input
*Network effects are in use in two-sided markets

Question 11

Strategies in noncooperative games

Answer 11

Strategy: move to make “always pick heads”
Dominant strategies: highest benefit
Prisoner’s dilemma
The dominant strategy is to always confess.

Question 12

Economies of Scale

Answer 12

going up in scale, but the price does not go up on the same scale

Question 13

Barriers to Entry

Answer 13

factors that prevent newcomers into a market. (Price, supplies, etc.)

Question 14

Game Theory

Answer 14

Possible outcomes in situations thinking about other companies’ “moves” and strategies.
Cooperative: all work together to be better off (collusion)
Noncooperative: No one works together
Zero-sum: Gains and losses equal each other out
Negative-sum: all lose
Positive-sum: all win

Question 15

Reaction Function

Answer 15

Oligopolies react to changes in prices, outputs, or quality made by another oligopolist.