Econ Chapter 17

cartel

a group of firms acting in unison

oligopoly

a market structure in which only a few sellers offer similar or identical products Oligopolists maximize their total profits by forming a cartel and acting like a monopolist. Yet, if oligopolists make decisions about production levels individually, the result is a greater quantity and a lower price than under the monopoly outcome. The larger the number of firms in the oligopoly, the closer the quantity and price will be to the levels that would prevail under perfect competition.

prisoners' dilemma

a particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial The prisoners' dilemma shows that self-interest can prevent people from maintaining cooperation, even when cooperation is in their mutual interest. The logic of the prisoners' dilemma applies in many situations, including arms races, common-resource problems, and oligopolies.

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

The key feature of an oligopolistic market is that? each firm produces a different product from other firms. a single firm chooses a point on the market demand curve. each firm takes the market price as given. a small number of firms are acting strategically.

a small number of firms are acting strategically.

dominant strategy

a strategy that is best for a player in a game regardless of the strategies chosen by the other players

collusion

an agreement among firms in a market about quantities to produce or prices to charge

As the number of firms in an oligopoly grows large, the industry approaches a level of output that is_____ the competitive level and______ the monopoly level. less than, more than more than, less than less than, equal to equal to, more than

equal to, more than

The prisoners' dilemma is a two-person game illustrating that the cooperative outcome could be worse for both people than the Nash equilibrium. even if the cooperative outcome is better than the Nash equilibrium for one person, it might be worse for the other. even if cooperation is better than the Nash equilibrium, each person might have an incentive not to cooperate. rational, self-interested individuals will naturally avoid the Nash equilibrium because it is worse for both of them.

even if cooperation is better than the Nash equilibrium, each person might have an incentive not to cooperate.

If an oligopolistic industry organizes itself as a cooperative cartel, it will produce a quantity of output that is______ the competitive level and______ the monopoly level. less than, more than more than, less than less than, equal to equal to, more than

less than, equal to

If an oligopoly does not cooperate and each firm chooses its own quantity, the industry will produce a quantity of output that is______ the competitive level and_____ the monopoly level. less than, more than more than, less than less than, equal to equal to, more than

less than, more than

The antitrust laws aim to facilitate cooperation among firms in oligopolistic industries. encourage mergers to take advantage of economies of scale. discourage firms from moving production facilities overseas. prevent firms from acting in ways that reduce competition.

prevent firms from acting in ways that reduce competition.

game theory

the study of how people behave in strategic situations