econ 201 ch 10
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- a market structure with many firms selling products tha are substitutes but different enough that each firm's demand curve slopes downward
- rim entry is relatively easy
how do sellers differentiate their products in monopolistic competition?
- physical differences
- product image
- the difference between a firm's profit-maximizing quantity and the quantity that minimizes average cost
- firms with excess capacity could reduce average cost by increasing capacity
a market structure characterized by so few firms that each behaves interdependently
an oligopoly that sells a commodity, or a product that does not differ across suppliers
an oligopoly that sells products that differ across suppliers
why have some industries evolved into oligopolies?
- economies of scale
- high cost of entry
- crowding out competition
what are the models of oligopoly?
- collusion and cartels
- price leadership
- game theory
an agreement among firms to increase economic profit by dividing the market and fixing the price
a group of firms that agree to coordinate their production and pricing decisions to earn monopoly profit
why is it difficult for a cartel to maximize profit?
- differences in average cost
- number of firms in the cartel
- new entry into the industry
a firm whose price is matched by other firms in the market as a form of tacit collusion
what are the obstacles of price leadership?
- violates US antitrust laws
- the greater the product differentiation among sellers, the less effective price leadership as a means of collusion
- no guarantees other firms will follow the leader
- without barriers to entry, a profitable price attracts new entrants, which could destabilize the agreement
- some firms are tempted to cheat on the agreement
an approach that analyzes oligopolistic behavior as a series of strategic moves and counter-moves by rival firms
a game that shows why players have difficulty cooperating even though they would benefit from cooperation
in game theory, the operational plan pursued by a player
in game theory, a table listing the payoffs that each player can expect from each move based on the actions of the other player
in game theory, the outcome achieved when each player's choice does not depend on what the other player does
- a market with only two producers
- a special type of oligopoly market structure
- a situation in which a firm, or a player in game theory, chooses the best strategy given the strategies chosen by others
- no participant can improve his or her outcome by changing strategies even after learning the of the strategies selected by other participants
- in game theory, a strategy in repeated games when a player in one round of the game mimics the other player's behavior in the previous round
- an optimal strategy for getting the other player to cooperate
- a type game in which a Nash equilibrium occurs when each player chooses the same strategy
- neither player can do better than matching the other player's strategy
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