Econ Final

Front 1

list the assumptions necessary for oligopoly.

Back 1

-few sellers (interdependence-each seller must be aware that their actions will provoke actions by rival firms)
-differentiated vs homogeneous products
-many buyers
-perfect information
-restricted entry

Front 2

what factors must be considered in the definition of a market?

Back 2

-demand substitution factors (consumer responses)
-supply substitution factors (production responses)
or relevant product/geographic market

Front 3

what is the prisoner's dilemma? how can it be used to explain price stability among oligopolists?

Back 3

prisoner's dilemma is a game in which pursing dominant strategies results in non-cooperating that leaves everyone worse off.

Front 4

discuss the most important barriers to entry in oligopolistic markets?

Back 4

-economies of scale (a situation in which a firm's long-run average costs fall as it increases output). The greater the economies of scale, the fewer the number of firms that will be in the industry.
-ownership of a key input: if production of a good requires a particular input, then control of that input can be a barrier to entry.
-government-imposed barriers- many firms employ lobbyists to convince state legislators and members of congress to pass laws favorable to economic interest of the firms. A patent gives a firm the exclusive right to a new product for a period of 20 years from the invention date. This is used to encourage firms to carry out research and development of new/better products, and improve existing products. The government also imposes barriers to entering some industries by imposing tariffs and quotas on foreign competition.

Front 5

what is meant by mutual interdependence in oligopolistic markets?

Back 5

demonstrated in the necessity to maintain price stability shown in the kinked demand. It may lead firms to follow strategies which dont constitute outright collusion but produce a similar outcome. The strategies include price-leadership where one firm (usually the most dynamic) is the first to change its price and all firms follow..and cost plus pricing where prices are aligned because all firms have the same profit or markup margin on similar costs.

Front 6

what is meant by "collusion" among oligopolists?

Back 6

"Collusion" among oligopolists takes place within an industry when rival companies cooperate for their mutual benefit. Characteristics include:
-uniform prices
-penalty for price discounts
-advance notice for price changes
-information exchange
Example) price fixing within food manufacturers providing cafeteria food to schools and the military in 1993.

Front 7

what is meant by price leadership?

Back 7

a form of implicit collusion where one firm in an oligopoly announces a price change, which is matched by the other firms in the industry. firms having less market shares only follow the prices fixed by leaders.

Front 8

discuss the concept of cost-plus pricing.

Back 8

Cost-plus pricing happens when adding a percentage markup to average cost. the firm first calculates average cost at a particular level of production, usually equal to the firm's expected sales. it then increases average cost by the percentage amount, say 20%, to arrive at the price.

Front 9

do oligopolists allocate resources efficiently?

Back 9

Oligopoly does not allocate efficiently. Like any firm with market control, an oligopoly charges a higher price and produces less output than the efficiency benchmark of perfect competition. Oligopoly tends to be the worst efficiency offender in the real world, because perfect competition doesnt exist.

Front 10

what is the schumpeterian view of the big corporation?

Back 10

For Schumpter, once big corporations are formed the imperfectly competitive market structure becomes stable, as large firms become increasingly conductive to technological progress and change. Schumpter also argues that capitalism is inexorably (grimly) evolving towards corporate capitalism. Big Corporations will be ultimately smothered by their bureaucratic structures, suppressing inner entrepreneurial activity. Big Corporation is a powerful engine of technological advance= market structure makes a difference to innovation.

Front 11

in your view, how are prices set in oligopolistic markets?

Back 11

the price in oligopolistic markets are determines by the dominance of one firm, resulting in price leadership. Firms having less market shares only follow the prices fixed by leaders. In general, the control over the price is determined by the level of coordination among them.

Front 12

do you believe that big corporations are good or bad for society?

Back 12

Stating that I am a democratic:
-big corporations have the ability to dominate local market, shoving out small businesses and keeping new ones from developing.
-wealth becomes stratified and concentrated in the greater population. the ramifications for the economy (as a whole) can produce recessions due to large increasing amount of capital that cant be spend on investments due to demand not increasing.
-big corporations are economic bureaucracies. small number of people make the decisions/approve ideas while the vast majority of people have little/no say in how things are ran and what goods/services are produced.
therefore, big corporations are fairly bad for society.

Front 13

define and explain the important provisions for the following antitrust laws:
sherman act, 1890
clayton act, 1914
federal trade commission act, 1914
celler-kefauver act, 1950

Back 13

-sherman act: prohibited "restraint of trade" including price fixing and collusion. outlawed monopolization.
-clayton act: prohibited firms from buying stock in competitors and from having directors serve on the boards of competing firms.
-federal trade commission act: established the federal trade commission (FTC) to help administer anti-trust laws.
-celler-kefauver act: toughened restrictions on mergers by prohibiting any mergers that would reduce competition.

Front 14

what is meant by horizontal, vertical, and conglomerate mergers? give an example of each.

Back 14

-horizontal- when two companies competing in the same market merge/join together.
-vertical- when a firm/company combines with a supplier/distributor. can be viewed as anticompetitive b/c it can often rob supply businesses from its competition.
-conglomerate- when two companies combine that have no type of common interest, arent in competition w/ any of the same competitors, and dont make use of the same suppliers/vendors.
((examples))
Horizontal- daimler-benz and chrysler (Automobile companies)
Vertical- Time Warner (TV Co.) and Turner Corporation (produces CNN, TBS, etc)
Conglomerate- Kelso's acquisition of Nortek. Nortek is a leading international designer manufacturing building products while Kelso&Company is a private equity firm based in New York City.

Front 15

Should the United States government strictly enfore the antitrust laws or should these laws be abandoned?

Back 15

Antitrust laws should be enforced because they protect competition. Benefits include lower prices for consumers and more innovation within companies. This could be viewed as a way to protect the interest of American consumers/taxpayers.

Front 16

What is price discrimination? How might sellers benefit from price discrimination?

Back 16

Price discrimination is the practice of one retailer, wholesaler, or manufacturer charging different prices for the same item(s) to different customers.
Benefit to seller: the seller sells the economically efficient amount capturing the entire consumer surplus, substantially increasing profits.