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24 Cards in this Set

  • Front
  • Back
Monopolistic Competition
Market Structure in which: Large numbers of firms compete, they each produce a differentiated product, compete on product quality, price, and marketing.Free to enter and exit.
Product Differentiation
If a firm makes a product a bit different than other firms in its market.
An action taken by an informed person or firm to send a message to uninformed people.
Distinglishing features are: Natural and legal barriers prevent the entry of new firms and there is a small number of firms.
An oligopoly market with two firms.
A group of firms acting together to limit output, raise price, and increase economic profit.
HHI in an oligopoly is ________ 1800.
HHI in an oligopoly is ________ 1800.
The presence of a large number of firms in the market implies:
1- Each firm has only a small market share and limited market power to influence the price.
2- No one firm’s actions directly affect the actions of other firms.
3- Collusion is impossible.
Conspiring to fix prices
Product differentiation enables firms to compete in three areas:
Two key differences between monopolistic competition and perfect competition are:
Excess capacity
Is Monopolistic Competition Efficient?
It seems to be ineffient because marginal cost doesn't equal marginal revenue.
The Kinked Demand Curve Model
Each firm believes that if it raises its price, its competitors will not follow, but if it lowers its price all of its competitors will follow.
Dominant Firm Oligopoly
1- One large firm has a significant cost advantage over many others small ones.
2- The large firm operates as a monopoly, setting its price and output to maximize its profit.
3- The small firms act as perfect competitors, taking price given by the big firms.
Game theory
A tool for studying strategic behavior, such as behavior of others and the mutual recognition of interdependence.
What Is a Game?
All games share four features:
Payoff matrix
A table that shows what will happen to each player depending on the action of the ather player.
Nash Equilibrium
If a player makes a rational choice in pursuit of his own best interest, he chooses the action that is best for him, given any action taken by the other player.
collusive agreement
An agreement between two or more firms to restrict output, raise price, and increase profits. It's illegal.
Dominant strategy equilibrium
The best strategy for each player is independent of what the other player does.
Cooperative Equilibrium
Firms make and share the monopoly profit.
Contestable market
Market in which firms can enter and leave so easily that firms in the market face competition from potential entrants—firms play a sequential entry game.
Limit pricing
A less costly strategy, which sets the price at the highest level that is consistent with keeping the potential entrant out.