Mod 64-66

Oligopoly Terms

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