Microeconomics Vocabulary - Chapter 14: Oligopoly
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.
