ECON 2302 CHAPTER 14 REVIEW
Advertising can persuade consumers to pay higher prices for products that are well __________ instead of purchasing unadvertised products with lower prices.
advertised
Firms in oligopolistic industries are "price makers" because such firms ______.
are few in number
A firm in an oligopolistic market ______.
can set its price and output to maximize profits
What term means "cooperation with rivals?"
collusion
Advertising benefits society by
conveying information to consumers.
Oligopolies have ______.
fewer firms than monopolistic competition
The study of how people behave in strategic situations is called ----theory.
game
The study of how one firm reacts to the actions taken by another firm or individual when implementing a strategy is called _____.
game theory
Price leadership in an oligopoly entails a type of ______.
implicit collusion
Companies often merge to ______ monopoly power.
increase
An oligopoly firm's demand curve will be kinked if ______.
its rivals match price decreases but ignore price increases
In the _______ model of oligopoly, firms react to price decreases but ignore price increases by other firms.
kinked-demand
Oligopolies are not a desirable market structure because they achieve ______.
neither productive efficiency nor allocative efficiency
Demand and cost differences, the number of firms in the industry, and the potential for cheating all represent ______ (one word) to collusion.
obstacles
A(n) _ (Enter one word) is a market dominated by a few large producers of a homogeneous or differentiated product.
oligopoly
The greater the difference in demand and costs between firms, the more difficult it is for firms to agree on _______.
prices
Oligopolists often compete through product development and advertising instead of price because ______.
product development and advertising are relatively difficult to copy
Advertising can reduce efficiency by ______.
providing misleading information manipulating consumer preferences
Barriers to entry into an oligopoly most resemble those of a ______.
pure monopoly
A game that is played more than once between rivals is a (Enter one word) game.
repeated
When a game between rivals occurs more than once, it is called a ______ game.
repeated
The four-firm concentration ratio is based on the ___.
sales of the largest firms in an industry
In a _______ game one firm moves first, committing to a strategy and then the rival firm responds.
sequential
To reduce uncertainty or increase profits, oligopolistic may change their prices ______.
through collusion
Oligopolistic behavior implies that oligopolists prefer competition ______.
through product development through advertising
Suppose RareAir honors an agreement to price high with Uptown. Based on the figure, if Uptown cheats and prices low instead of high, then Uptown can increase its payout by $______ million.
3
Oligopolies are comprised of ______.
A few large producers
Oligopolistic firms do which of the following when they change their pricing strategies?
Affect profits and influence the profits of rival firms
What is Nash Equilibrium?
An outcome in the payoff matrix from which neither firm wants to deviate since the current strategy is optimal given the rival's strategic choice.
How can oligopolistic firms influence their profits and the profits of their rivals?
By changing pricing strategies
Based on the payoff matrix, collusion between Chicpo and Dramco would result in policies represented by cell ________
D
True or false: Firms in an oligopoly always produce a homogeneous product.
False
Which of the following is not a characteristic of oligopoly?
Firms have no control over their price.
What are the positive effects of large oligopolists advertising?
It lowers search costs of information for consumers. It enhances competition and reduces monopoly power.
What is the only stable outcome in a payoff matrix
Nash equilibrium
Which are barriers to entry in both monopolies and oligopolies?
Ownership and control of raw materials Patents Preemptive pricing Large capital investment
When members of an oligopoly react to price changes by a dominant firm, the _______ ______ model is most applicable. (Enter one word per blank.)
Price leadership
What are three models used to study pricing and output by oligopolies?
Price leadership model Collusive pricing model Kinked-demand curve model
In what kind of game does one firm move first and commit to a specific strategy and then the rival responds?
Sequential game
Based on the payoff matrix, if the two firms agreed to both follow national strategies there is an incentive for them to cheat. If one of the firms cheats on this agreement, what will happen?
The game would temporarily move to either cell B or cell C. The game would eventually end in the Nash equilibrium (cell A).
Which of the following is a model used to examine oligopolistic pricing?
The kinked-demand curve model
What is the four-firm concentration ratio?
The percentage of total industry sales accounted for by the four largest firms
Which statement is true about oligopolies?
They do not achieve allocative efficiency because their price exceeds marginal cost.
Which statement is true about oligopolies?
They may produce homogeneous or differentiated products.
Based on the figure, why would a firm deviate from a collusive outcome as presented in the payoff matrix?
To increase its profit
Which are reasons that that firms merge?
To increase market share To obtain lower input prices To increase control over the product's price