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Micro Chapter 13
| Term | Definition |
|---|---|
| Oligopoly- | a few large producers -limited control over price -barriers to entry and mergers |
| Effect of other companies' decisions in oligopoly | what one company does, like lower their prices, influences what the other companies do |
| Examples of oligopoly: | Xbox and PlayStation, Aircraft manufacturers, Apple and Samsung phones |
| Oligopolistic Industries' Shortcomings: | -Localized markets -Interindustry competition -Import competition |
| Oligopoly 4-firm CR: | x < 40%; Monopolistic competition x > 40%; Oligopoly |
| Oligopoly behavior: | -Game theory -Prisoner's dilemma -Collusion |
| Collusion def- | a secret agreement/cooperation between rival firms in order to manipulate market conditions -typically to raise prices which ends up hurting consumers |
| Three oligopoly models show | Collusive pricing Price leadership |
| Overt collusion- Cartel | a group of firms or nations that collude -formally agreeing to the price -sets output levels for members collusion is illegal in the US |
| Obstacles to collusion | demand and cost differences, # of firms, cheating, recession |
| Price leadership | -dominant firm initiates price changes -other firms follow the leader |
| How is entry of new firms blocked | by using limit pricing, which can lead to a price war; setting prices so low that competitors can't make a profit if they join |
| Oligopoly and Advertising | oligopolies commonly compete through product development and advertising -not as easy for a competitor to duplicate -they are financially able to advertise |
| Negative effects of advertising | -can be manipulative -can contain misleading claims to confuse consumers |
| Oligopoly and Efficiency | Oligopolies are inefficient: Productively inefficient because P > min ATC Allocatively inefficient because P > MC |
| Efficiency qualifications: | -increased foreign competition -limit pricing -technological advance |
| A one-time game: Strategy | A firm's dominant pricing strategy |
| A one-time game: Equilibrium | Nash Equilibrium: -outcome from which neither firm wants to deviate -current strategy viewed as optimal -stable and persistent outcome |
| Repeated Games | A strategy game that recurs May cooperate and not compete strongly Rival reciprocates Ex: Coca-Cola & Pepsi, Nike & Adidas |
Created by:
Phillies55
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