MICROECONOMICS – CHAPTER 14

a market structure in which a small number of interdependent firms compete, will require completely different tools to analyze

1. Oligopolists are large, and know that their actions have an effect on one another.
2. Barriers to entry exist, preventing firms from competing away profits.

anything that keeps new firms from entering an industry in which firms are earning economic profits.

the situation when a firm's long-run average costs fall as the firm increases output.

This can make it difficult for new firms to enter a market, because new firms usually have to start small, and will hence have substantially higher average costs than established firms

If control of a key input is held by one or a small number of firms, it will be difficult for additional firms to enter.

Examples:
Alcoa—bauxite for aluminum production
De Beers—diamonds
Ocean Spray—cranberries

Governments might grant exclusive rights to some industry to one or a small number of firms.

Examples:
1. Occupational licensing for dentists and doctors
2. Patents
3. Tariffs and quotas imposed on foreign companies

The exclusive right to a product for a period of 20 years from the date the patent is filed with the government.

The study of how people make decisions in situations in which attaining their goals depends on their interactions with others; in economics, the study of the decisions of firms in industries where the profits of a firm depend on its interactions with other firms.

actions that a firm takes to achieve a goal, such as maximizing profits.

a table that shows the payoffs that each firm earns from every combination of strategies by the firms.

a strategy that is the best for a firm, no matter what strategies other firms use

a situation in which each firm chooses the best strategy given the strategies chosen by the other firms.

an agreement among firms to charge the same price or otherwise not to compete.

an equilibrium in a game in which players do not cooperate but pursue their own self interest.

an equilibrium in a game in which players cooperate to increase their mutual payoff.

a game in which pursuing dominant strategies results in noncooperation that leaves everyone worse off.

a form of implicit collusion in which one firm in an oligopoly announces a price change and the other firms in the industry match the change.

is a group of firms that collude by agreeing to restrict output to increase prices and profits.

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