Section 12 Flashcards
Duopoly
Oligopoly with only two firms
Collusion
When sellers cooperate to raise joint prices
Cartel
A group of producers that agree to restrict output to raise prices their profits
Noncooperative behavior
When firms ignore the effects their actions have on each other’s profits.
Game theory
Study of behavior in situations of interdependence
Payoff
Reward received by player in game
The prisoners dilemma
A game based on two premises
Each player has incentive to choose an action that benefits itself at the other players expense
And
When both players act in this way, they are both worse off than if they had cooperated.
Dominant strategy
When it doesn’t matter what the other player will do, the player will take the best action for them.
Nash equilibrium
Noncooperative equilibrium
When each player chooses the action that will maximize their profits given the actions of the other players
Tacit collusion
Non formal agreement
Anti trust policy
Efforts made by gov to prevent oligopolistic industries from becoming monopolies
Price war
Tacit collusion breaks down
Non price competition
Advertising (ex.)
Price leadership
One firms sets the price other firms follow
Zero profit equilibrium
Monopolistically competitive in the long run
Each firm makes 0 economic profit At its profit maximizing Q
