Monopolistic Competition and Oligopoly

Are demand curves more elastic or inelastic for monopolistic competitive markets?

More elastic because there are more substitutes available. The closer the substitutes are to each other, the more elastic they will be.

cartel

a group of competing companies that aim to maximize joint profits by coordinating their policies to fix prices, manipulate output, or restrict competition.

monopolistic competition

a market structure determined by a relatively large number of sellers producing a differentiated product, for which they have some control over the price they change, in a market with relatively easy market entry

dominant strategies

a situation in which a particular strategy yields the highest payoff for a decision maker regardless of the other decision makers' strategy

collusion

a situation in which decision makers coordinate their actions to achieve a desired outcome. Collusion is generally used to achieve an outcome that would not be possible in the absence of coordinated actions, and it is typically associated with illegal or anticompetitive behaviors.

Nash Equilibrium

a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen

payoff matrix

a table showing the potential outcomes arising from the choices made by decision makers

Federal Trade Commission Act (1914)

an antitrust law that made unfair methods of competition and unfair or deceptive acts or practices illegal

Herfindahl-Hirschman Index (HHI)

an index of market concentration found by summing the square of percentage shares of firms in the market

antitrust laws

laws designed to prevent firms from engaging in behaviors that would lessen competition in a market

Clayton Act of 1914

prohibits mergers that would substantially lessen competition or create a monopoly, as well as some specific business practices such as price-fixing and tying contracts

excess capacity `

the underutilization of resources that occurs when the quantity of output a firm chooses to produce is less than the quantity that minimizes average total cost

oligopoly

A market structure in which a few large firms dominate a market. These producers are are price makers and behave strategically when making decisions related to the features, prices, and advertising of their products

mutual interdependence

A situation in which a change in price strategy (or in some other strategy) by one firm will affect the sales and profits of another firm (or other firms). Any firm that makes such a change can expect the other rivals to react to the change.

normal profit

The level of profit that occurs when total revenue is equal to total cost. This level indicates that a firm is doing just as well as it would have if it had chosen to use its resources to produce a different product or compete in a different industry. Normal profit is also known as zero economic profit.

market share

percentage of a market accounted for by a specific entity

sherman act (1890)

the first antitrust law enacted in the US, which made "every contract, combination, or conspiracy in restraint of trade" illegal

economic profit

the level of profit that occurs when total revenue is greater than total cost

loss

the level of profit that occurs when total revenue is less than total cost

four-firm concentration ratio

the percentage of total industry sales accounted for by the top four firms in the industry

product differentiation

the strategy of distinguishing one firm's product from the competing products of other firms

game theory

the study of the strategic behavior of decision makers