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14 Cards in this Set
- Front
- Back
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involves a large number of small firms and its similar to competition, with easy entry and exit, but unlike the competitive model, the firms have differentiated their products, whether real or imagined.
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Monopolistic competition
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one firm's product is distant from another's through such things as advertising innovation, and location.
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products differentiation
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a market with just a few dominating the industry where (1) each firm recognizes that it must consider its competitors' reaction when making its own decisions (mutual interdependence), and (2) there are significant barriers to entry into the market
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Oligopoly
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when only a dew firms constitute an industry, each firm must consider the reactions of its competitors to its decisions
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Mutual interdependence
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an agreement between firms in an industry (or countries) to formally collude on price and output, then agree on the distribution of production.
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Cartel
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an oligopoly model that assumes that if a firm raises its price competitors will not raise theirs; but if the firm lowers its price, all of its competitors will lower their price to match the reduction. this leads to kink in the demand curve and relatively stable market prices.
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kinked demand curve
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an approach to analyzing oligopoly behaviors using mathematics and simulation by using different assumptions about the players, time involved, level of information, strategies, and other aspects of the game
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game theory
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a noncooperative game where players can't communicate or collaborate by making their decisions about whether to confess or not and thus results in inferior out comes for both player.
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Prisoner's Dilemma
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an importan prof that an n-person game where each players chooses his optimal strategy, given that all other players have done the same, has a solution. this an important proof because economists now knew that even complex models (or games) had a equilibrium or solution.
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Nash equilibrium
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one-off games (not repeated) where decisions by the players are made simultaneously and are irreversible
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Static Games
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sequential or repeated games where the players can adjust their actions based on the decisions of other players in the past
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Dynamic Games
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selling below cost of consumers in the short run hoping to eliminate competitors so that prices can be raised in the longer run to earn economic profits
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Predatory pricing
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action is taken contingent on your opponent's past decisions. for example, a grim trigger strategy is defined as any unfavorable decisions by your opponent that is met by permanent retaliatory decision forever
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Trigger strategies
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simple strategies that repeat the prior move of competition, if your opponent lowers price, you do the same. this approach has the efficient quality that it rewards cooperation and punishes unfavorable strategies (defection)
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tit-for-tat strategies
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