Chapter 15 Flashcards
(20 cards)
When a firm shapes its policy with an eye to the policies of competing firms
Mutual interdependence
When firms act together to restrict competition
Collusion
A collection of firms that agree on sales, pricing, and other decisions
Cartel
Determination of price based on the marginal revenue derived from the market demand schedule and marginal cost schedule of the firms in the industry
Joint profit maximization
A large firm in an oligopoly that unilaterally makes changes in its product prices that competitors tend to follow
Price leader
A competitor in an oligopoly that goes along with the pricing decision of the price leader
Price follower
When a dominant firm that produces a large portion of the industry’s output sets a price that maximizes its profits, and other firms follow
Price leadership
Setting a price deliberately low in order to drive out competitors
Predatory pricing
The study of strategic interactions among economic agents
Game theory
In this game, firms cooperate to increase their mutual payoff
Cooperative game
In this game, players do not cooperate but each pursues their individual self-interest
Noncooperative game
Strategy that will be optimal regardless of opponents actions
Dominant strategy
A game in which pursuing dominant strategies results in non-cooperation and makes everyone worse off
Prisoners’ dilemma
A summary of the possible outcomes of various strategies
Payoff matrix
Strategy used in repeated games where one player follows the other player’s move in the previous round; leads to greater cooperation
Tit-for-tat strategy
When the number of other people purchasing the good influences quantity demanded
Network externality
Increase in a consumer’s quantity demanded for a good because a greater number of other consumers are purchasing the good
Positive network externality
Increase in a consumer’s demand for a good because fewer consumers are purchasing the same good
Negative network externality
A positive network externality in which a consumer’s demand for a product increases because other consumers own it
Bandwagon effect
The costs involved in changing from one product to another brand or in changing suppliers
Switching costs
