Microeconomics Chapter 10 Monopolistic Competition, Oligopoly, and Game Theory
Monopolistic Competition
-many buyers and sellers -differentiated products -no barriers to market entry or exit -no long-run economic profit -some control over price
Two basic game theory assumptions
1. preferences are clearly defined 2. players rationally choose strategies to achieve objectives
Cartel
An agreement between firms (or countries) in industry to formally collude on price and output and then agree on the distribution of production
Which action can help increase the stability of a cartel?
Increase government protection
Which of the following would ENHANCE a cartel's stability?
Lack of non-price discounts
Which characteristic does monopolistic competition NOT have in common with perfect competition?
Products of individuals firms are different
Game Theory
The study of how individuals and firms make strategic decisions to achieve their goals when other players or factors can influence that outcome
Before deciding on a pricing strategy, Worldwide Widgets consults with its market intelligence team to understand what discounts the Gargantuan Gizmo Company is offering. The model that BEST fits this industry is:
an oligopoly
Tit-For-Tat
cooperation is rewarded and defection is punished
If a cartel member is considering cheating in order to earn profits, it should
increase the quantity it sells at the quota price
Nash Equilibrium
occurs when all players in a game use an optimal strategy in response to all other players' strategies
Trembling Hand Trigger
retaliation is delayed
Grim Trigger
retaliation is permanent