Oligopoly and Antitrust Policy

This set of vocabulary flashcards covers the fundamental concepts of Oligopoly behavior, market measurement tools like the Herfindahl index, and the historical framework of U.S. Antitrust Policy.

Oligopoly

A market structure characterized by a small number of firms, standardized and differentiated products, sticky prices, and difficult entry or exit into the market.

Mutual Interdependence

A characteristic of oligopolistic firms where every decision made must take into account the expected reaction of other firms.

Sticky Prices

Prices that do not change frequently, often due to informal collusion or the kinked demand curve.

Kinked Demand Curve

A model illustrating that if a firm increases price, others won’t go along (elastic demand), but if a firm lowers price, others match the decrease (inelastic demand).

Collusion

An agreement among firms about quantities to produce or prices to charge.

The Cartel Model

A model where firms act as a single firm and assign output quotas to member firms to achieve joint profit maximization.

Implicit Price Collusion

A situation where multiple firms make the same pricing decisions without having consulted with one another, often following a dominant lead firm.

Cross-price elasticity

A measure of the responsiveness of the change in demand for a good to a change in the price of a related good; a value of $3$ or more suggests goods belong to the same market.

North American Industry Classification System (NAICS)

An industry classification system that categorizes industries by the type of economic activity and groups firms with like production processes.

Concentration ratio

The value of sales by the top firms of an industry stated as a percentage of total industry sales.

Herfindahl index

An empirical measure of industry structure calculated as the sum of the squared value of the individual market shares of all firms in the industry.

Conglomerate Firms

Huge corporations whose activities span various unrelated industries.

Sherman Antitrust Act of 1890

A law designed to regulate the competitive process.

Clayton Antitrust Act of 1914

An act that identified specific practices as illegal and monopolistic.

Federal Trade Commission Act of 1914

One of the primary antitrust laws established to regulate the competitive process in the United States.

Antitrust policy

The government’s policy toward the competitive process.

Judgment by performance

A viewpoint that judges the competitiveness of markets based on the actual behavior and performance of the firms involved.

Judgment by structure

A viewpoint that judges the competitiveness of markets by the organizational structure of the industry.