econ chapter 15

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econ chapter 15
2009-11-28 17:36:46

krugman and wells chapter 15
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  1. imperfect competition
    when no one firm has a monopoly but producers nonetheless realize that they can affect market price
  2. two types of imperfect competition
    • monopolistic
    • oligopoly
  3. oligopoly
    • common market structure
    • an industry with only a small number of producers
  4. oligopolist
    a producer in an oligopoly market
  5. duoupoly
    • an oligopoly consisting of only two firms
    • each firm produces less/ limited to keep prices higher
  6. what options do the firms have in an oligopoly?
    • collusion
    • non-cooperative behavior
    • quantity competition
    • price competition
  7. collusion
    sellers cooperate to raise each others profits
  8. cartel
    • strongest form of collusion
    • an agreement by several producers to obey output restrictions in order to increase thier jint profits
  9. non-cooperative behavior
    ignoring the effects of their actions on each other's profits
  10. quantity competition
    • when firms are restricted in how much they can produce it is easier for them to avoid excessice comeptition and to divvy up the market thereby pricing above marginal
    • cournot model
  11. price competition
    • bertrand model
    • when firms produce perfect substitutes and have sufficient capacity to satisfy demand when price is equal to marginal cost then each firm will be compelled to engage in competition by undercutting it rivals price until the price reaches marginal cost
  12. interdependence
    when the decision of two or more firms significantly affect others profit
  13. game theory
    the study of behavior in situations of interdependence
  14. payoff
    reward recieved
  15. payoff matrix
    • shows how the payoff to each of the participants in a two player game depends on the actions of both
    • helps analyze interdependence
  16. when would an economist use game theory?
    to study firms behavior when there is interdependence between their payoff
  17. prisoners dilemma
    when each firm in interdependence has an incentive to cheat but both are worse off if both cheat
  18. dominant strategy
    an action when it is a players best action regardless of the action taken by the other player
  19. nash equilibrium
    • non-cooperative equilibrium
    • the result when each player in a game chooses the action that maximizes his payoff given the actions of the other players ignoring the effects of this action on the payoffs received by those other players
  20. strategic behavior
    sacrificing short-run profit to influence future behavior
  21. tit for tat
    playing cooperatively at first then doing whatever the other player did in the previous period
  22. tacit collusion
    when firms limit production and raise prices in a way that raises each others profits even though they have not made any formal agreement
  23. tacit collusion is limited by a number of factors including:
    • large numbers of firms
    • complex products and pricing scheme
    • bargaining power of buyers
    • conflicts of interest among firms
  24. price war
    when collusion breaks down
  25. product differentiation
    an attempt by a firm to convince buyers that its product is different from the products of other firms in the industry
  26. what do oligopolist often engaged in to limit competition?
    product differentiation
  27. price leadership
    one firm sets its price first and other firms then follow
  28. non-price competition
    using advertising and other means to try to increase their sale
  29. oligopolists often avoid competing directly on _________.
  30. when products are differentiated it is sometimes possible for an industry to achieve tacit collusion through _______________.
    price leadership
  31. dominant strategy
    an action that is always the best regardless of the other players action
  32. kinked demand curve
    illustrates how an oligopolist that faces unique changes in its marginal cost within a certain range may decrease not to adjust its output and price in order to avoid a breakdown in tacit collusion