Game Theory and Collusion in Oligopoly

Flashcards summarizing key concepts related to collusion, pricing, and profit strategies in oligopoly markets.

Collusion

A scenario where firms cooperate to set prices or output levels to increase profits.

Marginal Cost (MC)

The cost of producing one more unit of a good, given as MC = 60 in the scenario.

Price (P) when colluding

The price set by firms when they collude, given as P = 300.

Profit

The difference between total revenue and total costs; in this case, profit for each firm is calculated as 180 based on given values.

Defection in collusion

When one firm breaks the collusion agreement to gain a competitive advantage, resulting in different pricing or output.

Best response

The optimal strategy or action a player should take based on the expected actions of their opponent.

Marginal Revenue (MR)

The additional revenue that one more unit of output would bring to a firm, used to determine optimal output levels.

Stable Equilibrium

A situation in a game where no player has an incentive to deviate from their current strategy.

Option A in collusion

Scenario in which firms collude and share profits equally, yielding the highest profit for both.

Market scenario

The collective behavior of firms in determining prices and outputs within the market depending on their strategies.