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24 Cards in this Set
- Front
- Back
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Monopolistic Competition
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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.
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Product Differentiation
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If a firm makes a product a bit different than other firms in its market.
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Signal
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An action taken by an informed person or firm to send a message to uninformed people.
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Oligopoly
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Distinglishing features are: Natural and legal barriers prevent the entry of new firms and there is a small number of firms.
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Duopoly
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An oligopoly market with two firms.
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Cartel
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A group of firms acting together to limit output, raise price, and increase economic profit.
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HHI in an oligopoly is ________ 1800.
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Above
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HHI in an oligopoly is ________ 1800.
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Below
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The presence of a large number of firms in the market implies:
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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. |
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Collusion
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Conspiring to fix prices
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Product differentiation enables firms to compete in three areas:
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Quality
Price Marketing. |
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Two key differences between monopolistic competition and perfect competition are:
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Excess capacity
Markup |
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Is Monopolistic Competition Efficient?
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It seems to be ineffient because marginal cost doesn't equal marginal revenue.
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The Kinked Demand Curve Model
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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.
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Dominant Firm Oligopoly
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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. |
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Game theory
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A tool for studying strategic behavior, such as behavior of others and the mutual recognition of interdependence.
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What Is a Game?
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All games share four features:
Rules Strategies Payoffs Outcome |
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Payoff matrix
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A table that shows what will happen to each player depending on the action of the ather player.
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Nash Equilibrium
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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.
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collusive agreement
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An agreement between two or more firms to restrict output, raise price, and increase profits. It's illegal.
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Dominant strategy equilibrium
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The best strategy for each player is independent of what the other player does.
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Cooperative Equilibrium
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Firms make and share the monopoly profit.
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Contestable market
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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.
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Limit pricing
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A less costly strategy, which sets the price at the highest level that is consistent with keeping the potential entrant out.
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