Chapter 17: Oligopoly Flashcards

A set of vocabulary flashcards defining key economic terms related to oligopoly market structures, game theory, and government antitrust policies based on Chapter 17 lecture notes.

Oligopoly

A market structure characterized by only a few sellers who offer similar or identical products and are interdependent.

Game theory

The study of how people behave in strategic situations where they must consider how others might respond to the actions they take.

Duopoly

An oligopoly with only two members who decide what quantity to sell, with the price being determined on the market by demand.

Collusion

An agreement among firms in a market regarding the specific quantities to produce or the prices to charge.

Cartel

A group of firms acting in unison to act like a monopolist and agree on total levels of production.

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.

Output effect

Part of an oligopolist's decision-making where, because $P > MC$, selling one more unit increases profit.

Price effect

Part of an oligopolist's decision-making where increasing production increases the total amount sold, which results in a decrease in price and lower profit.

Prisoners’ dilemma

A particular game between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial.

Dominant strategy

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

Tit-for-tat

A strategy for a repeated prisoners' dilemma where a player starts by cooperating and then replicates the other player's last action.

The Sherman Antitrust Act, $1890$

A law that elevated agreements among oligopolists to a criminal conspiracy and prohibits competing executives from talking about fixing prices.

The Clayton Act, $1914$

A law that strengthened antitrust laws and is used to prevent mergers and prevent oligopolists from colluding.

Resale price maintenance

A business practice where a firm requires retailers to charge customers a given price; its defenders argue it ensures retailers offer specific services.

Predatory pricing

A strategy where a firm charges prices that are too low, often below cost, intended to drive rivals out of the market.

Tying

A business practice where two goods are offered together at a single price, which may act as a form of price discrimination.