Oligopoly - Key Concepts

Flashcards covering essential vocabulary and definitions related to oligopoly and market structures.

Oligopoly

A market structure characterized by a small number of firms that have significant market power and recognize their interdependence in pricing and output decisions.

Duopoly

A special case of an oligopoly with only two firms in the market.

Price Leader

In a duopoly, the firm that sets its price first, which influences the pricing decisions of the other firm.

Quantity Leader

In a duopoly, the firm that chooses its quantity produced first, impacting the output decisions of the follower.

Simultaneous Game

A market scenario where firms make decisions at the same time without knowledge of the other's choices.

Reaction Function

A function that represents how one firm's optimal output choice depends on the output choice made by another firm.

Cournot Equilibrium

An equilibrium condition in an oligopoly where firms choose their quantities simultaneously and their decisions are based on their expectations of their rivals' output.

Stackelberg Model

A model of oligopoly in which one firm, the leader, sets its output before the other firm, the follower, based on the leader's choice.

Bertrand Competition

A model where firms compete by setting prices rather than quantities, leading to a competitive equilibrium price equal to marginal cost.

Cartel

A group of firms that collude to set prices and output levels to maximize joint profits.

Cooperative Game

A scenario in which firms may collude to agree on prices and output levels to maximize collective profits.

Punishment Strategy

A method used to maintain a cartel by threatening to revert to competitive behavior if one member deviates from the agreement.