Oligopoly Flashcards
Define oligopoly
A market that is dominated by a small number of firms
What does more competition equal?
Less price control
What is imperfect competition?
No one firm has a monopoly, but producers can affect market prices
Define HHI
The sum of the squares of each firm’s share of market sales
What does a HHI under 1000 indicate?
A strongly competitive market
What does a HHI between 1000 to 1800 indicate?
A somewhat competitive market
What does a HHI above 1800 indicate?
An oligopoly
What is a collusion?
Firms cooperating to raise each other’s profits. The strongest form of collusion is a cartel, an agreement by several producers to restrict output in order to increase their joint profits
Define non-cooperative behaviour
When firms ignore the effects of their actions on each other’s profits
What is a prisoner’s dilemma?
When each firm has an incentive to cheat but both are worse off if both cheat
Define non-cooperative equilibrium
The result when each player in a game chooses the action that maximises their payoff given the actions of other players, ignoring the effects or their action on the payoffs received by other players
