Monopolistic competition and Oligopoly Flashcards
(27 cards)
A market structure characterized by a relatively large number of sellers producing a differentiated product, for which they have some control over the price they charge.
monopolistic competition
The strategy of distinguishing one firm’s product from the competing products of other firms
product differentiation
The underutilization of resources that occurs when the quantity of output a firm chooses to produce in less than the quantity that minimizes average total cost.
excess capacity
At what point does does a firm reach productive efficiency
When marginal cost = ATC
At what point does a firm become allocatively efficient
Where marginal cost intersects the demand curve
A market structure characterized by a few large producers, of either standardized or differentiated products operating in industries with extensive barriers to entry.
oligopoly
A situation in which a change in strategy followed by one producer will likely affect the sales, profits, and behavior of another producer
Mutual interdependence
A concentration ratio that measures the percentage of sales by the four largest firms in a particular industry
four-firm concentration ratio (CR4) = Sales of 4 largest firms/total sales of industry * 100
A market concentration index calculated by summing the squared percentage of sales from all firms in a particular industry
Herfindahl-Hirschman Index (HHI)
Industries at or above a 40% CR4 are considered a
oligopoly
A model where non-collusive oligopolistic firms ignore other firms’ price increases but match their price decreases.
Kinked demand model
A group of competing companies that aim to maximize joint profits by coordinating their policies to fix prices, manipulate output, or restrict competition.
Cartel
A situation in which decisionmakers coordinate their actions to achieve a desired outcome that normally would not be possible without coordinations.
Collusion
The practice used by the dominant firm in a noncollusive oligopolistic to prevent the entry of new firms by establishing a price lower than the short-run profit maximizing price
limit pricing
A practice used by the dominant firm in a noncollusive oligopolistic market to signal price changes
price leadership
The study of the strategic behavior of decision makers
game theory
A table showing the potential outcomes arising from the choices made by decision makers
payoff matrix
A situation in which a particular strategy yields the highest payoff for a decision maker regardless of the other decision makers strategy
dominant strategy
An outcome in which decision makers choose their dominant strategy and each has no incentive to independently change his or her strategy
Nash Equilibrium
The process of identifying optimal strategies by starting at the end of a game tree and moving toward its origin.
Backward induction
The advantage that a player receives by moving first in a sequential game and thereby influencing the set of possible outcomes.
First-mover advantage
The study of the strategic behavior of decision makers
game theory
A mapping tool that shows that strategies available to players engaged in a sequential game as well as the potential outcomes received by those players
Game tree
Laws designed to prevent firms from engaging in behaviors that would lessen competition in a market.
antitrust laws
