ch 18 - oligopoly

ECON 1101

oligopoly

market structure in which only a few sellers offer similar or identical products

game theory

the study of how people behave in strategic situations

duopoly

a market with only two sellers

collusion

agreement among firms in a market about quantities to produce or prices to charge

cartel

a group of firms acting in unison

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

because P > MR, increasing output raises profits

price effect

raising production increases total quantity sold, which reduces prices and profits on all units sold

prisoner’s 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 other players

tit for tat

whatever your rival does in one round (whether renege or cooperate), you do in the following round

sherman antitrust act

elevated agreements among oligopolists from an unenforceable contract to a criminal conspiracy

clayton act

further strengthened the antitrust laws by allowing the awarding of triple damages to entities harmed by anticompetitive practices

resale price maintenance

a manufacturer imposes lower limits on the prices retailers can charge

• goal: preventing discount retailers from free-riding on the services provided by full-service retailers

predatory pricing

a firm cuts prices to prevent entry or drive a competitor out of the market

• illegal under antitrust laws

bundling

a manufacturer bundles two products together and sells them for one price

concentration ratio

measure a market’s domination by a small number of firms

• the percentage of total output in the market supplied by the 4 largest firms