CH. 18 ECON OLIGOPOLY

oligopoly

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

The essence of an oligopolistic market is that there are_____ sellers, so the actions of any one of them can have a _____ impact on the profits of all the others.

few; large

game theory

the study of how people behave in strategic situations

When setting _______, a firm in an oligopoly needs to consider how its choices might affect the choices of other firms in the market.

production

In what market should you use game theory?

oligopolies

An oligopolistic market has only a small group of sellers and is characterized by the tension between ______ and ______

cooperation and self interest.

Oligopolists can make the most profit if they ______ and together act like one big ______.

cooperate and monopolist

Yet because each oligopolist cares only about its own profit, powerful incentives pull them apart, making it hard to maintain the _______outcome

cooperative

Oligopolists—production for profit is_______

is a low quantity and P>MC p has to be greater than MC

Consider the simplest type of oligopoly, one with only two members, called a _____.

duopoly.

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

collusion

a group of firms acting in unison

cartel

A oligopoly will pick what outcome to maximize profit

monopoly outcome because it maximizes their total profit

A _____ must agree not only on total production but also on the amount produced by each member.

cartel

The logic of ______ increases the duopoly’s output above the monopoly level, but it does not push the duopolists all the way to the competitive ______.

self interest and allocation

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

Nash equilibrium

when firms in an oligopoly ______choose production to maximize profit, they produce a quantity ______ than the level produced by a monopoly and less than the level produced under perfect competition. The oligopoly price is l_____than the monopoly price but greater than the competitive price

individually; greater; less

Because price exceeds marginal cost, selling one more gallon of water at the going price increases profit.

The output effect

Because raising production increases the total quantity sold, the price of water declines, as does the profit on all the other gallons sold.

The price effect

If the output effect outweighs the price effect, the well owner _______ production. If the price effect outweighs the output effect, the owner does ______ production

increases; not increase

when a oligopoly gets to large it becomes a _____

almost equal with competitive firms

In summary, as the number of sellers in an oligopoly grows, an oligopolistic market increasingly resembles a ______market. The price approaches marginal cost, and the quantity produced approaches the ______.

competitive market; socially efficient level

a particular “game” between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial

prisoners’ dilemma

a strategy that is best for a player in a game regardless of the strategies chosen by the other players

dominant strategy

The monopoly outcome is _____ for the oligopolists but ____ for consumers

good; bad

the ______outcome is best for society because it maximizes total surplus

competitive

When oligopolists fail to cooperate, the quantity they produce is closer to this _____.

optimal level.

markets are competitive only when firms in the market fail to ______ with one another.

cooperate

The allocation of resources will be closer to the social optimum if firms in an oligopoly compete rather than_____

Cooperate

resale price maintenance.

when company make retail stores charge the product a specified amount.

predatory pricing

when you cut the market price so that you can have have full control of it all.

Bundling

when a company would sell multiple items as a service when the values are not equal

Oligopolies would like to act like monopolies, but ______ drives them toward competition.

self interest

The story of the prisoners’ dilemma shows why oligopolies can fail to maintain cooperation, even when cooperation is in their _______

best interest

Policymakers regulate the behavior of oligopolists through the ______.

use of antitrust laws.

The proper scope of these laws is the subject of ongoing _____

debate

There is little doubt that price fixing among competing firms reduces _______and is an appropriate target for ______

economic welfare and regulators

As a result, policymakers need to be careful when they use the substantial powers of the to place limits on firm behavior

policy makers and anti trust laws