Chapter 12 Vocabulary: Oligopoly and Strategic Behavior

Vocabulary flashcards covering key terms and definitions from Chapter 12 on oligopoly and strategic behavior.

Oligopoly

A market served by a few firms.

Game theory

The study of decision making in strategic situations.

Concentration ratio

The percentage of the market output produced by the largest firms.

Herfindahl-Hirschman Index (HHI)

A measure of concentration obtained by summing the squares of the percentage market shares of all firms in the market.

Duopoly

A market with two firms.

Cartel

A group of firms that act in unison, coordinating their price and quantity decisions.

Price fixing

An arrangement in which firms conspire to fix prices.

Game tree

A graphical representation of the consequences of different actions in a strategic setting.

Dominant strategy

An action that is the best choice for a player, no matter what the other player does.

Duopolists' dilemma

A situation in which both firms in a market would be better off if both chose the high price, but each chooses the low price.

Nash equilibrium

An outcome of a game in which each player is doing the best he or she can, given the action of the other players.

Low-price guarantee

A promise to match a lower price of a competitor.

Grim-trigger strategy

A strategy where a firm responds to underpricing by choosing a price so low that each firm makes zero economic profit.

Tit-for-tat strategy

A strategy where one firm chooses whatever price the other firm chose in the preceding period.

Price leadership

A system under which one firm in an oligopoly takes the lead in setting prices.

Payoff matrix

A matrix or table that shows, for each possible outcome of a game, the consequences for each player.

Limit pricing

The strategy of reducing the price to deter entry.

Limit price

The price that is just low enough to deter entry.

Contestable market

A market with low entry and exit costs.