Microeconomics Vocabulary - Chapter 14: Oligopoly

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Antitrust Policy

Consists of efforts undertaken by the government to prevent oligopolistic industries from becoming or behaving like monopolies.

Non price Competition

Firms that have a tacit understanding not to compete on price often engage in advertising and other means to try and increase their sales

interdependence

Game theory is commonly used to explain behavior in oligopolies, because oligopolies are characterized by

neither firm cheats on the agreement; Gary cheats on the agreement and Frank does not cheat

Gary's Gas and Frank's Fuel are the only two providers of gasoline in their small town. Gary and Frank decide to form a cartel to raise the price of gasoline. The total industry profits are highest when ________, and Gary's profits are highest when ________.

Raise, Tacit

If rival solar roof panels in Reno limit production and ________ prices in a way that increases their profits without meeting with one another in a formal way, this is known as ________ collusion.

Price War

Occurs when tacit collusion breakdown and prices collapse

Price Leadership

One firm sets it's price first, and other firms then follow

Payoff matrix

Shows how the payoff to each of the participating firms in a two-player game depends on the actions of both.

10,000, monopoly

The largest HHI possible is ________ and the industry is a(n) ________ .

Duopolists

The producers or firms in a duopoly.

Payoff

The reward received by a player (firm) in a game, such as the profit earned by an oligopolist.

Game Theory

The study of the behavior of firms in interdependence

Strategic Behavior

When a firm attempts to influence the future behavior of other firms.

Dominant Strategy

When a players action is the best action to take, regardless of the action taken by the other player.

Noncooperative Behavior

When firms ignore the effects of their actions on each other's profits.

Tacit Collusion

When firms limit production and raise prices in away that raises one another's profits, even though they have not made a formal agreement.

Imperfect Competition

When no one firm has monopoly, but producers nonetheless realize that they can affect market prices

Interdependence

When one firms decision significantly affects the profits of other firms in the industry.

Collusion

When sellers engage in cooperation with one another to raise their joint profits

100

Which of the following Herfindahl-Hirschman indices is most likely to indicate a perfectly competitive market? 100 1,000 10,000 or 100,000

Prisoners Dilemma

A game based on two premises: 1) Each player has an incentive to choose an action that will benefit themselves at the other players expense. 2) When both players act in this way, both are equally worse off than if they had acted cooperatively.

Oligopolists

A producer in an oligopoly industry.

Tit for Tat

A strategy which involves player 1 playing cooperatively at first, and assessing player 2's actions (cooperative or not) during the period, and then in the new period, player 1 repeats whatever actions performed by player 2 in the previous period.

Nash Equilibrium

Also known as Noncooperative Equilibrium; Results when each game player chooses the action which maximizes his/her payoff given the actions of other players but ignoring the effects of his/her action on the playoffs received by those other players.

Cartel

An agreement amount several producers to obey output restrictions in order to increase their joint profits

Production Differentiation

An attempt by a firm to convince buyers that it's product is different from the products of other firms in that industry.

Oligopoly

An industry with only a small number of producers.

Organization of Petroleum Exporting Countries

An international cartel composed of oil-producing countries - the cartel is responsible for the increase of crude oil prices in the 1970's - OPEC

Duopoly

An oligopoly consisting of only two producers.


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