Econ 2302 Chapter 16

Refer to Table 16-5. If both store follow a dominant strategy, SuperDuper Saver's growth-related profits will be

$50

Refer to Table 16-5. If both stores follow a dominant strategy, Ultimate Savers' growth-related profits will be

$65

The concept of a Nash equilibrium, when applied to an oligopoly situtaion,

Illustrates the tension between self-interest and cooperation, relies on the logic of firms pursuing their own self-interests, and relies on the notion that each firm chooses its best strategy, given the strategies that other firms have chosen.

Refer to Table 16-5. When this game reaches a Nash equilibrium, the dollar value of growth-related profits will be

Ultimate Saver $65 and SuperDuper Saver $50

When an oligopoly market is in Nash equilibrium,

a firm will choose its best pricing strategy, given the strategies that it observes other firms taking.

monopolistic competition

a market structure in which many firms sell products that are similar but not identical.

oligopoly

a market structure in which only a few sellers offer similar or identical products.

Once a cartel is formed, the market is in effect served by

a monopoly

One key difference between an oligopoly market and a competitive market is that oligopolistic firms

are interdependent while competitive firms are not.

Refer to Table 16-5. The dominant strategy is to increase the size of its store and parking lot for

both stores

When strategic interactions are important to pricing and production decisions, a typical firm will

consider how competing firms might respond to its actions

The prisoners' dilemma provides insights into the

difficulty of maintaining cooperation.

A tit-for-tat strategy starts out

friendly, then penalizes unfriendly players, and forgives them if warranted.

When firms are faced with making strategic choices in order to maximize profit, economists typically use

game theory to model their behavior.

The prisoners' dilemma is an important game to study because

it identifies the fundamental difficulty in maintaining cooperative agreements.

As the number of firms in an oligopoly market grows larger, the price will approach

marginal cost.

There are two types of imperfectly competitive markets:

monopolistic competition and oligopoly

Markets with only a few sellers, each offering a product similar or identical to the others, are typically referred to as

oligopoly markets

Refer to Table 16-5. The owners of Super Duper Saver and Ultimate Saver meet for a friendly game of golf one afternoon and happen to discuss a strategy to optimize growth related profit. They should both agree to

refrain from increasing their store and parking lot sizes.

in a game, a dominant strategy is, by definition

the best strategy for a player to follow, regardless of the strategies followed by other players.

In markets characterized by oligopoly,

the oligopolists are best off cooperating and behaving like a monopolist

The "arms race" is similar to which of the following economic scenarios?

the prisoners' dilemma

Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists together,

they are unable to maintain the same degree of monopoly power enjoyed by a monopolist.