Oligopoly and Strategic Behavior

Flashcards covering key vocabulary terms related to oligopoly and strategic behavior in economics.

Oligopoly

A market structure characterized by a few large producers who have limited control over prices.

Homogeneous Oligopoly

An oligopoly where products are identical or nearly identical.

Differentiated Oligopoly

An oligopoly where products are distinct and differentiated from each other.

Mutual Interdependence

A situation in an oligopoly where the decision of one firm affects, and is affected by, the decisions of other firms.

Collusion

An agreement among firms in an oligopoly to restrict competition by setting prices or output levels.

Game Theory

A mathematical framework used to analyze competitive situations where the outcomes depend on the actions of multiple players.

Nash Equilibrium

A situation in a game where each player's strategy is optimal given the strategies of the other players.

Kinked-Demand Curve

A model used to explain price rigidity in oligopolistic markets by showing that firms will follow price decreases but not price increases.

Price Leadership

A scenario in an oligopoly where one dominant firm sets the price and other firms follow.

First-Mover Advantage

The competitive advantage gained by the first firm to enter a market or industry.

Herfindahl Index

A measure of market concentration calculated by squaring the market share of each firm in the industry and summing the results.

Limiting Pricing

A strategy used by incumbent firms to deter entry by setting prices low enough to make it unprofitable for new entrants.

Cartel

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

Advertising

A marketing strategy used by oligopolies to promote product differentiation and brand loyalty.

Incentive to Cheat

The motivation for firms in a collusive agreement to break from the agreement for higher short-term profits.

Prisoner's Dilemma

A situation in game theory where two players may not cooperate even if it is in their mutual best interest to do so.