Microeconomics Chapter 10 Monopolistic Competition, Oligopoly, and Game Theory

Monopolistic Competition

-many buyers and sellers -differentiated products -no barriers to market entry or exit -no long-run economic profit -some control over price

Two basic game theory assumptions

1. preferences are clearly defined 2. players rationally choose strategies to achieve objectives

Cartel

An agreement between firms (or countries) in industry to formally collude on price and output and then agree on the distribution of production

Which action can help increase the stability of a cartel?

Increase government protection

Which of the following would ENHANCE a cartel's stability?

Lack of non-price discounts

Which characteristic does monopolistic competition NOT have in common with perfect competition?

Products of individuals firms are different

Game Theory

The study of how individuals and firms make strategic decisions to achieve their goals when other players or factors can influence that outcome

Before deciding on a pricing strategy, Worldwide Widgets consults with its market intelligence team to understand what discounts the Gargantuan Gizmo Company is offering. The model that BEST fits this industry is:

an oligopoly

Tit-For-Tat

cooperation is rewarded and defection is punished

If a cartel member is considering cheating in order to earn profits, it should

increase the quantity it sells at the quota price

Nash Equilibrium

occurs when all players in a game use an optimal strategy in response to all other players' strategies

Trembling Hand Trigger

retaliation is delayed

Grim Trigger

retaliation is permanent