ECON 2106 Chapter 12
collusion
a situation in which individuals, firms, or any group of actors 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, an it is typically associated with illegal and anti-competitive behaviors
mutual interdependence
a situation in which the strategy followed by one producer will likely affect the profits and behavior of another producer
payoff matrix
a table showing the potential outcomes arising from the choices made by decision makers
Monopolistic competition and elasticity
because monopolistic competitive firms offer products that are close substitutes to each other, their consumers are more responsive to price changes. As such, the demand they face for their products is relatively more elastic, or more horizontal, than that faced by pure monopolies
Monopolistic competition and consumers
the incentives produced by monopolistic competition result in a broad selection of similar, but differentiated, products that allow consumers to tailor their purchases to maximize their own utility.
excess capacity
the under-utilization of resources that occurs when the quantity of output a firm chooses to produce is less than the quantity that minimizes ATC
Economic efficiency and monopolistic competition
Compared to perfectly competitive firms, monopolistically competitive firms generally have similar MC and ATC, but have slightly higher prices and slightly lower quantities
monopolistic competition
a market structure characterized by a relatively LARGE number of sellers producing a DIFFERENTIATED product, for which they have SOME control over the price they charge, in a market with RELATIVELY EASY market entry and exit.
oligopoly
a market structured characterized by a few large producers, of either standardized or differentiated products, operating in industries with extensive entry barriers. These producers are price makers and behave strategically when making decisions related to the features, prices, and advertising of their products. Producers are mutually interdependent
dominant strategy
a situation in which a particular strategy yields the highest payoff regardless of the other player's strategy
Nash equilibrium
an outcome in which, unless the players can collude, neither player has an incentive to change his/her strategy
product differentiation
the strategy of distinguishing one firm's product from the competing products of other firms
game theory
the study of strategic behavior of decision makers
