ECON 2106 Chapter 12

collusion

a situation in which individuals, firms, or any group of actors coordinate their actions to achieve a desired outcome. Collusion is generally used to achieve an outcome that would not be possible in the absence of coordinated actions, an it is typically associated with illegal and anti-competitive behaviors

mutual interdependence

a situation in which the strategy followed by one producer will likely affect the profits and behavior of another producer

payoff matrix

a table showing the potential outcomes arising from the choices made by decision makers

Monopolistic competition and elasticity

because monopolistic competitive firms offer products that are close substitutes to each other, their consumers are more responsive to price changes. As such, the demand they face for their products is relatively more elastic, or more horizontal, than that faced by pure monopolies

Monopolistic competition and consumers

the incentives produced by monopolistic competition result in a broad selection of similar, but differentiated, products that allow consumers to tailor their purchases to maximize their own utility.

excess capacity

the under-utilization of resources that occurs when the quantity of output a firm chooses to produce is less than the quantity that minimizes ATC

Economic efficiency and monopolistic competition

Compared to perfectly competitive firms, monopolistically competitive firms generally have similar MC and ATC, but have slightly higher prices and slightly lower quantities

monopolistic competition

a market structure characterized by a relatively LARGE number of sellers producing a DIFFERENTIATED product, for which they have SOME control over the price they charge, in a market with RELATIVELY EASY market entry and exit.

oligopoly

a market structured characterized by a few large producers, of either standardized or differentiated products, operating in industries with extensive entry barriers. These producers are price makers and behave strategically when making decisions related to the features, prices, and advertising of their products. Producers are mutually interdependent

dominant strategy

a situation in which a particular strategy yields the highest payoff regardless of the other player's strategy

Nash equilibrium

an outcome in which, unless the players can collude, neither player has an incentive to change his/her strategy

product differentiation

the strategy of distinguishing one firm's product from the competing products of other firms

game theory

the study of strategic behavior of decision makers