Chapter 11: Competition, Cooperation, and Collusion Study Guide

Flashcards covering key terms and concepts from Chapter 11 regarding competition, cooperation, and collusion.

Collusion

Collective attempts between competing firms to reduce competition.

Competitive Dynamics

Actions and responses undertaken by competing firms.

Competitor Analysis

The process of anticipating rivals’ actions to revise a firm’s plan and prepare for rival responses.

Explicit Collusion

Firms directly negotiate output and pricing and divide markets.

Tacit Collusion

Firms indirectly coordinate actions by signaling intention to reduce output and maintain pricing.

Antitrust Laws

Laws that make cartels (trusts) illegal.

Prisoner’s Dilemma

A game theory scenario where the outcome depends on two parties deciding whether to cooperate or defect.

Game Theory

A theory studying interactions between two parties that compete and/or cooperate.

Concentration Ratio

The percentage of total industry sales accounted for by the top four firms.

Price Leader

A firm with a dominant market share that sets acceptable prices and margins in the industry.

Capacity to Punish

Sufficient resources possessed by a price leader to deter and combat defection.

Market Commonality

The overlap between two rivals’ markets.

Mutual Forbearance

Multimarket firms respect their rivals’ spheres of influence, leading to tacit collusion.

Predatory Pricing

An attempt to monopolize a market by setting prices below cost to eliminate rivals.

Antidumping Laws

Law making it illegal for an exporter to sell goods below cost with intent to raise prices later.

Resource Similarity

The extent to which a competitor possesses comparable strategic endowments to those of the focal firm.

Attack

An initial set of actions to gain competitive advantage.

Counterattack

A set of actions in response to an attack.

Awareness-Motivation-Capability (AMC) Framework

A framework suggesting that a competitor will not respond unless aware, motivated, and capable.

Blue Ocean Strategy

A strategy that focuses on developing new markets while avoiding direct attacks on core markets.

Market Power

The ability to raise prices without the fear of losing customers.