Chapter 13

A ______ is a statement that a firm will take a particular action if the rival firm carries out a particular action.

Threat

A group of nations or firms that enter an explicit agreement to restrict competition to drive up prices is a(n) _____.

Cartel

A grim strategy is one that punishes cheaters

Forever

A _____ can help to analyze sequential decisions by showing the structure and payoffs of a sequential decision situation.

Game Tree

______ is an analytical guide for making decisions in situations involving interdependence,

Game theory

When managers seek the mutually best decision for all firms, the game usually results in a

Nash equilibrium

A firm can gain second-mover advantage

when the rival firm commits to a course of action before the firm makes a decision.

A limit pricing strategy is credible if possible entrants believe the established firms

will keep price low after entrance.

A _____ strategy is a strategy that choose cooperative actions until an episode of cheating initiates a period of punishment.

trigger

Offering a promise to meet a future sale price for an item sold by your firm if a customer purchases today is

a sale-price guarantee.

A Nash equilibrium is

a set of actions for which all managers are choosing their best actions given the actions chosen by their rivals.

When cheating triggers punishment in the next decision period and the punishment continues unless the cheating stops, this is know as

a tit-for-tat strategy.

Interdependence in an oligopoly market is that firms must

act strategically based on the expectations of the actions of their rivals.

Select all that apply Strategic entry deterrence alters entrant beliefs about the behavior of established firms. eliminates economic profits earned by existing firms. creates entry barriers for new firms. increases the possibility of new firms entering.

alters entrant beliefs about the behavior of established firms. creates entry barriers for new firms

A ______ curve is a curve indicating the best decision given the decision the manager believes a rival will make.

best-response

In a one-time prisoners' dilemma situations, cooperation does not happen because

both firms have the incentive to cheat.

When one player in a game has a dominant strategy, the other player should

choose its best outcome given the dominant strategy.

Tacit collusion is

cooperation among rivals that does not involve any explicit agreement.

When a researcher can predict the outcome of a game based on the dominant strategies of the players, it is a(n)

dominant strategy equilibrium.

Successive elimination of dominated strategies involves

eliminating dominated strategies and creating a reduced payoff table.

When a firm can increase its payoff by making its decisions first, this is called a(n)

first-mover advantage.

A(n) _____ is any decision-making situation in which people compete with each other for the purpose of gaining the greatest individual payoff.

game

Select all that apply Capacity expansion as a barrier to entry is executed by established firms by the firm making a threat to increase output if a new firm enters. lower prices if a new firm enters. raise prices if a new firm enters. add excess capacity if a new firm enters.

increase output if a new firm enters. lower prices if a new firm enters.

Oligopoly firms are

interdependent

For the threat of capacity expansion to be effective, the increase in capacity must be

irreversible.

Generally, a firm's commitment is not credible unless it is

irreversible.

Cooperation between players in the prisoners' dilemma

is unlikely because there is a strong incentive to cheat on an agreement.

A credible commitment by an established firm to set and keep price below the profit-maximizing level to prevent entry is

limit pricing.

Select all that apply The characteristics of an oligopoly are independence. many firms. market power. interdependence. price taking behavior. few firms. relatively large firms.

market power. interdependence. few firms. relatively large firms.

Once the best-response curves have been calculated for both firms in an oligopoly, the equilibrium will occur where

the best-response curves cross.

Select all that apply Entering a cartel is generally not advisable because prices are too stable. there is usually incentive to cheat. most fail to raise prices very much. they are illegal in most countries. profits do not increase.

there is usually incentive to cheat. most fail to raise prices very much. they are illegal in most countries. profits do not increase.

A ______ is an irreversible announcement that a firm will take a particular action no matter what action is taken by rivals.

Commitment

______ occurs when oligopoly firms make decisions that make every firm better off than in a noncooperative Nash equilibrium outcome.

Cooperation

Where the best-response curves intersect is

a Nash equilibrium.

_____ show the points at which decisions are made in a sequential decision situation.

Decision nodes

True or false: Limit pricing can generally always be effectively practiced.

False

A firm will decide to cheat on rival firms cooperation agreement when

PV benefits of cheating > PV costs of cheating

A ______ is a statement that a firm will take a particular action that is desirable to the rival if the rival firm carries out a particular action.

Promise

Select all that apply Strategic moves include threats. advantages. promises. marketing. commitments.

threats. promises. commitments.

A trigger strategy is a strategy

to punish cheaters

A(n) _____ has few relatively large firms, moderate to substantial market power, and interdependence between firms.

oligopoly

When a firm sets price and other firms then set the same price, this is

price leadership.

Publicly announcing that a firm will meet advertised prices of other firms is

price matching.

Select all that apply Pricing practices that facilitate cooperation between firms include price matching. private communication. public pricing. sale-price guarantee. price leadership. covert, signed pricing agreements.

price matching. public pricing. sale-price guarantee. price leadership.

Offering open access to pricing is

public pricing.

In a repeated decision game, firms can coerce cooperative decisions because they can

punish the cheater.

A threat is credible if

rivals believe the conditional action is in the best interest of the firm making the threat.

When one firm makes its decision first, then a rival firm makes its decision, ______ decisions have been made.

sequential

A ______ is a situation in which competing firms must make their individual decisions without knowing the decisions of their rivals.

simultaneous decision game

A best-response curve analyzes and explains

simultaneous decisions given what the manager believes a rival will make.

Actions taken by firms to plan for and react to competition from rival firms are called

strategic behavior

Interdependence requires that rival firms engage in

strategic behavior.

Strategic moves taken by established firms to prevent entry of new firms is

strategic entry deterrence.

A firm can use _____ to put rivals at a disadvantage.

strategic moves

When faced with a complicated sequential game, players should employ

successive elimination of dominated strategies until a reasonable choice is reached.

Cooperation among rival firms that does not involve any explicit agreement is

tacit collusion.

Cooperation occurs when

the benefits of cheating are less than the costs of cheating for all firms.