Studied by 0 people
Looks like no one added any tags here yet for you.
interdependent
the profits of each firm depends on the actions of the other firms in the market
duopoly
oligopoly consisting of only 2 firms — each are known as duopolists
collusion
firms cooperating to raise joint profits
cartel
a group of firms that agree to restrict output in order to increase prices and their joint profits
noncooperative behavior
when firms act in their own self-interest, ignoring the effects of their actions on each other’s profits
payoff matrix
shows how the payoff of each participant (2 people) depends on the actions of both participants
helps us understand interdependence situations
dominant strategy
when it is a player’s best option regardless of the action taken by the other person
Nash/Noncooperative Equilibrium
when each player chooses an action that maximizes their payoff, GIVEN the other player’s actions
tit for tat strategy
playing cooperatively, and then copying the actions of the other player in the previous period
tacit collusion
when firms HAVE NOT formed any formal agreement and limit production and raise prices increase each other’s profit
price war
when tacit collusion breaks down and aggressive price competition causes prices to collapse
periodically happens in the burger, airline, and grocery industries
price leadership
one firm sets a price and other firms follow
nonprice competition
using things other than price to try and increase sales (advertising, warranties, loyalty programs, etc)
is collusion legal or illegal?
It is illegal in the U.S., but legal in some other countries
game theory
the study of behavior in situations of interdependence
payoff
an individual player’s payoff or reward in a game (or oligopolists profit)
The Prisoner’s Dilemma
Between 2 players, where they can both cooperate and choose a mutually beneficial option, or betray their partner for individual gain
who is Nash equilibrium named after?
John Forbes Nash, Jr.
