Prisoner's Dilemma Game Analysis

Oligopoly

Market with a few firms, price often > marginal cost, barriers to entry

Monopoly

Market with one firm, price > marginal cost, no competition

Perfect Competition

Market with many firms, price = marginal cost, no barriers to entry

Monopolistic Competition

Market with differentiated goods, price > marginal cost, some product variety

Price = Marginal Cost

Characteristic of perfect competition, firms charge production cost

Deadweight Loss

Loss of economic efficiency, present in monopoly and oligopoly

Excess Capacity

Production below efficient scale, seen in monopolistic competition

Free Entry

Market condition where firms can enter without barriers

Product Differentiation

Distinguishing products in the market, minimal in oligopoly

Barriers to Entry

Obstacles preventing new firms from entering the market

Strategic Interaction

Consideration of rivals' actions in decision-making, key in oligopoly

Identical Products

Goods sold by firms in an oligopoly, minimal differentiation

Positive Profit

Profitability achievable in some oligopolies despite competition

Terminal Degree

Requirement for certain professions, like a PhD for professors

Soft Drink Industry

Example of oligopoly with major players like Coke and Pepsi

Automotives

Industry where a few companies dominate, an oligopoly example

Crude Oil Industry

Oligopoly market with significant barriers to entry

Gasoline Market

Varies between perfectly competitive and oligopoly based on location

Market Power

Ability of a firm to influence market conditions

Quantity Competition

Competition based on output levels, common in oligopolies

Price Leadership

One firm sets prices, others follow, a strategy in oligopoly

Collusion

Illegal agreement between firms to manipulate market prices

Game Theory

Study of strategic decision-making in competitive situations

Market Equilibrium

Balanced state where demand equals supply, sought in all markets

Economic Efficiency

Optimal allocation of resources to maximize total surplus

Total Surplus

Sum of consumer and producer surplus, maximized in free markets

Incentives

Factors that influence price direction based on market conditions.

Demand Curve Uncertainty

Oligopolists face uncertainty as their demand curve depends on competitors' actions.

Players

Individuals or firms involved in strategic interaction.

Strategies

Options chosen by players in a game.

Payoffs

Outcomes resulting from strategies in a game.

Duopoly

Market with two firms interacting strategically.

Marginal Cost

Cost of producing one additional unit of a good.

Total Revenue

Income from selling a product, equal to price multiplied by quantity.

Profit

Total revenue minus total cost.

Supply Curve

Graph showing the relationship between price and quantity supplied.

Elasticity

Measure of responsiveness of quantity demanded to price changes.

Inelastic

Demand or supply not significantly affected by price changes.

Perfectly Inelastic

Quantity supplied does not change regardless of price.

Perfectly Elastic

Quantity supplied changes infinitely with any price change.

Quantity

Amount of a good produced or sold.

Price

Amount of money required to purchase a good or service.

Market Demand Curve

Graph showing the quantity of a good demanded at different prices.

Market Supply Curve

Graph showing the quantity of a good supplied at different prices.

Market Price

Price at which quantity demanded equals quantity supplied.

Market Share

Proportion of total industry sales a firm captures.

Supply Curve Shift

Occurs when total quantity increases, driving price down

Monopoly Profit

Maximizes profit at quantity 60, earning $3,600

Marginal Revenue Curve

Shares intercept with demand, twice the slope

Marginal Cost Curve

Intersects with marginal revenue to determine production level

Perfect Competition Profit

Involves price equaling zero, resulting in zero profit

Oligopoly Outcome

Expected to be closer to monopoly profit than perfect competition

Cartel Formation

Occurs when firms collude to maximize joint profits

Collusion Challenges

Include profit splitting and trust issues leading to potential breakdown

Cartel Incentives

Include joint profit maximization and individual profit temptation

Duopoly Likely Outcome

Both firms bringing 40, total quantity 80, price 40, profit $3,200

Profit Maximization Strategy

Involves firms anticipating each other's actions to maximize individual profit

Price Determination

Occurs at intersection of demand and supply curves

Market Structure Comparison

Contrasts monopoly, perfect competition, oligopoly outcomes

Marginal Cost Influence

Affects pricing and profit decisions in different market structures

Collusive Agreement Risks

Include incentives to cheat, leading to suboptimal outcomes

Total Profit Calculation

Derived from quantity brought multiplied by resulting price

Joint Profit Maximization

Goal of colluding firms in a cartel to increase total earnings

Quantity-Price Relationship

Higher quantity drives price down in competitive markets

Profit Distribution Disputes

Arise from disagreements on how to split joint earnings

Market Power Impact

Influences firms' ability to set prices and control output

Optimal Output Level

Where marginal cost equals marginal revenue for profit maximization

Collusion Detection

Challenging due to secretive nature of agreements

Price Competition

Occurs when firms vie to attract customers with lower prices

Profit Loss Prevention

Involves strategic decision-making to avoid revenue decreases

Profit Maximization Outcome

Achieved by producing at quantity where marginal cost equals marginal revenue

Market Influence Factors

Include demand, cost structures, and competitive behavior

Collusive Agreement

Agreement between players to maximize joint profits.

Monopolist

Acting as a single entity to maximize profits.

Conflict

Opposing interests leading to a dilemma.

Prisoner's Dilemma

Game theory scenario where self-interest conflicts with team interest.

Game Matrix

Chart showing strategies and payoffs in game theory.

Payoff

Outcome or reward for a specific strategy in a game.

Confess

Admitting guilt to implicate the partner in the prisoner's dilemma.

Remain Silent

Choosing not to confess in the prisoner's dilemma.

Strategy

Plan of action chosen in a game or situation.

Outcome

Result of a particular strategy combination in a game.

Dilemma

Situation requiring a choice between unfavorable options.

Team Interest

Collective benefit for all players involved.

Individual Interest

Personal benefit or advantage for a single player.