Chapter 12
If a firm perceived that the other firm in an implicit pricing agreement dropped its price in an attempt to gain market share, then its most likely response would be to
engage in price war
Oligopoly differs from monopoly and perfect competition in that
firms consider each others actions when choosing price and quantity, there are a few firms in the industry, firms act strategically
True things about Cartels
firms in cartel often charge the same price for a particular good or service, if two firms form a cartel they could charge the same price as a monopolist, a cartel could be made up of as few as two firms
True things about the oligopolistic market structure
a few firms serve the market, economies of scale in production, a firm may carry out a big advertising campaign
In general, firms in a cartel
agree to charge the price the monopolist would charge
The rational outcome of a guaranteed matching or 'meet the competition' policy is that
both firms will sell at the high price
if there is a legitimate threat of entry into a market, then the market is said to be
contestable
A firm announces that it will refund the difference between its price and any price of a competitor that is lower. This is an example of
guaranteed price matching
In general, the quantity of output in a monopoly market is
lower than an oligopoly
In a kinked demand model, that part of the demand curve below the kink is
more inelastic than the region above the kink
The four firm concentration ratio measures the
percentage of market output produced by the four largest firms
If two firms use a tilt-for-tat scheme to maintain cartel pricing and one firm chooses a low price in the current time period then
the other firm will choose a low price in the next time period
if the price in a oligopoly market is the same as that of a monopoly market with identical cost and demand conditions then
there may be a collision between firm
What makes a grim trigger strategy 'grim' is
If one player underprices, then the other player drops the price so far that profits for both firms are zero forever