Chapter 14: Oligopoly

Question 1

Anti-combine Law

Answer 1

Law that regulates oligopolies and prevents them from becoming monopolies or behaving like monopolies.

Question 2

Strategies

Answer 2

All the possible actions of each player in a game.

Question 3

Payoff Matrix

Answer 3

Table that shows the payoffs for every possible action by each player for every possible action by each other player.

Question 4

Oligopoly

Answer 4

Market structure in which a small number of firms compete.

Question 5

Nash Equilibrium

Answer 5

Outcome of a game that occurs when player A takes the best possible action given the action of player B and player B takes the best possible action given the action of player A.

Question 6

Limit Pricing

Answer 6

Practice of setting the price at the highest level that inflicts a loss on an entrant.

Question 7

Game Theory

Answer 7

Set of tools for studying strategic behaviour—behaviour that takes into account the expected behaviour of others and the recognition of mutual interdependence.

Question 8

Cartel

Answer 8

Group of firms acting together—colluding—to limit output, raise the price, and increase economic profit.

Question 9

Collusive Agreement

Answer 9

Agreement between two (or more) producers to form a cartel to restrict output, raise the price, and increase profits.

Question 10

Contestable Market

Answer 10

Market in which firms can enter and leave so easily that firms in the market face competition from potential entrants.

Question 11

Cooperative Equilibrium

Answer 11

Outcome of a game in which the players make and share the monopoly profit.

Question 12

Dominant-strategy Equilibrium

Answer 12

Equilibrium in which the best strategy for each player is to cheat regardless of the strategy of the other player.

Question 13

Duopoly

Answer 13

Oligopoly market in which two producers of a good or service compete.