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Interdependence
Firms outcome (profit/loss) is based on the actions of other firms
Duopoly
Only two firms in the industry
Collusion
An illegal (in the US) agreement of two or more firms to work together to improve their outcomes (hurts society)
Cartel
A group of firms engaging in collusion
Noncooperative Behavior
Firms act in their own self-interest ignoring the effects on the market and other firms
Game Theory
The study of interdependent markets
Payoff Matrix
The tool used to study game theory and determine firms dominant strategy and dominant strategy equilibrium
Dominant Strategy
The strategy a firm should choose, regardless of another firms decision
Dominant Strategy Equilibrium
The result in a payoff matrix when both firms choose to employ their dominant strategy
Nash Equilibrium
When both players choose what is in the best interest, regardless of what the other player chooses, and have no incentive to change their strategy
Antitrust Policy
Efforts by the government to prevent oligopolies from acting like monopolies
Tacit Collusion
Firms act in ways that raise the profits of all firms without a formal agreement
Price War
When firms compete on prices so heavily to the point that profits are wiped out of the market
Product Differentation
When firms try to convince consumers that their product is different from other products in the market
Price Leadership
When one dominant firm sets the price in the market and others follow
Note
Flashcard