Principles of Economics II - Unit 5: Strategic Behaviour

This set of flashcards covers the key concepts of game theory as applied to oligopoly from the lecture notes.

What is game theory?

Game theory is the study of how people behave in strategic situations.

Why is game theory useful in economics?

It is useful for understanding oligopolies and situations with a small number of players interacting.

What is a key feature of an oligopolistic market?

The tension between cooperation and self-interest among the few sellers.

What is collusion in the context of oligopolies?

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

What is a cartel?

A group of firms acting in unison.

What is the 'Prisoners’ Dilemma'?

A game that illustrates why cooperation is difficult to maintain even when it is mutually beneficial.

What does 'Nash equilibrium' refer to?

A situation where economic actors choose their best strategy given the strategies of others.

What is a dominant strategy?

A strategy that is best for a player regardless of what the other players choose.

Why do oligopolists struggle to maintain cooperative outcomes?

Because each firm focuses on maximizing its own profit, creating incentives to cheat.