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monopolistic competition
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a market structure in which many firms sell a differentiated product, entry is relatively easy, each firm has some control over its product price, and there is considerable nonprice competition
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product differentiation
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a strategy in which one firm's product is distinguished from competing products by means of its design, related services, quality, location, or other attributes (except price)
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nonprice competition
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competition based on distinguishing one's product by means of product differentiation and then advertising the distinguished product to consumers
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four firm concentration ratio
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the percentage of total industry sales accounted for by the top four firms in an industry
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Herfindahl index
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a measure of the concentration and competitiveness of an industry; calculated as the sum of the squared percentage market shares of the individual firms in the industry
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excess capacity
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plant resources that are underused when imperfectly competitive firms produce less output than that associated with achieving minimum average total cost
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oligopoly
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market structure in which a few firms sell either a standardized or differentiated product into which entry is difficult, in which firms have limited control over product price because of mutual interdependence, and in which there is typically nonprice competition
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homogenous oligopoly
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oligopoly in which firms produce a standardized product
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differentiated oligopoly
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oligopoly whereby a firm produces a differentiated product
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strategic behavior
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self interested economic actions that take into account the expected reactions of others
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mutual interdependence
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a situation in which a change in price strategy by one firm will affect the sales and profits of another firm; any firm that makes such a change can expect its rivals to react to the change
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interindustry competition
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the competition for sales between the products of one industry and the products of another industry
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import competition
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competition that domestic firm encounter from the products and services from foreign producers
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game theory
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the study of how people behave in strategic situations in which individuals must take into account not only their own possible actions but also the possible reactions of others
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collusion
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a situation in which firms act together and in agreement to fix prices, divide a market, or otherwise restrict competition
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kinked demand curve
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a demand curve that has a flatter slope above the current price than below the current price'; applies to a noncollusive oligopoly firm if its rivals will match any price decrease but ignore any price increase
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price war
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successive, competitive, and continued decreases in the prices charged by firms in an oligopolistic industry; at each stage of the price war, one firm lowers its price below its rivals price, hoping to increase sales and revenues at its rivals' expense
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cartel
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formal agreement among firms in an industry to set the price of a product and establish the outputs of the individual firms or to divide the market for the product geographically
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price leadership
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an informal method that firms in an oligopoly may employ to set the price of their product: one firm is the first to announce a change in price and the other firms soon announce identical or similar changes
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