Chapter 17: Oligopoly Flashcards
Define ‘Oligopoly’.
A market structure in which only a few sellers offer similar or identical products.
Define ‘Game theory’.
The study of how people behave in strategic situations.
Define ‘Collusion’.
An agreement among firms in a market about quantities to produce or prices to charge.
Define ‘Cartel’.
A group of firms acting in unison.
Define ‘Nash equilibrium’.
A situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen.
Define ‘Prisoner’s dilemma’.
A particular “game” between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial. It applies in many situations, including ads, common-resources, and oligopolies.
Define ‘Dominant strategy’.
A strategy that is best for a player in a game regardless of the strategies chosen by other players.
When do oligopolists maximize their total profits?
Forming a cartel and acting like a monopolist.
If oligopolists make decisions about production levels individually, what happens…?
A greater quantity and a lower price than under a monopoly.
The larger the number of firms in an oligopoly…?
The closer the quantity and rice will be to the levels that would prevail under perfect competition.
How do policymakers deal with oligopolies?
They use anticompetition laws to prevent oligopolies from engaging in behaviour that reduces competition.
Cam behaviour that seems to reduce competition have legitimate business purposes?
Yes.
