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In oligopoly, any action by one firm to change price, output, or quality causes
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a reaction by other firms.
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A market situation in which there are a few large firms is called
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oligopoly.
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How do economies of scale contribute to the development of an oligopoly?
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Economies of scale make small-scale producers inefficient.
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Suppose an industry has total sales of $25 million per year. The two largest firms have sales of $6 million each, the third largest firm has sales of $2 million, and the fourth largest firm has sales of $1 million. The four-firm concentration ratio for this industry is
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60 percent.
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If Target were to merge with Wal-Mart, this would be referred to as a(n)
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horizontal merger.
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A reaction function is
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the manner in which one oligopolist reacts to a change in price made by another oligopolist in the industry.
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The analytical framework in which two or more firms compete for certain payoffs that depend on the strategy that the others employ is
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game theory.
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An example of a cooperative game would be
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a cartel.
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A dominant strategy is one that
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always yields the highest benefit regardless of what the other players do
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A group of producers that agree to coordinate their production is called a
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cartel
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Which of the following is a condition that helps enforce a cartel agreement?
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easily observable prices
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When oligopolistic firms in an industry form a cartel, then it is most likely that
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industry output will decrease while prices will increase.
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1) When a consumer's willingness to buy a good or service is influenced by the number of people who have purchased that good or service, this is called
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a network effect.
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When there is a tendency for a particular product to come into favor with additional consumers because other consumers have chosen to purchase the product,
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positive market feedback occurs.
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Negative market feedback refers to a tendency for
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a particular product to fall out of favor with additional consumers because other consumers have stopped purchasing the product.
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Product compatibility applies to products of different firms that
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are complementary.
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The situation in which firms wish to coordinate but cannot agree on how to do so is called
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Battle of the Sexes.
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Other things being equal, which market structure would produce the least output and the highest average product price?
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Monopoly
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In which market structure does a firm have the LEAST influence over the market price?
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Perfect competition
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Unrestricted entry and exit into the market is found in
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perfect competition and monopolistic competition.
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