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Chapter 11
Econ 212
19
Economics
Undergraduate 1
04/04/2011

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Term
Monopolistic Competition
Definition
A market structure in which many firms sell a differentiaed product, into which entry is relatively easy, in which the firm has some control over its product price, and in which there is considerable nonprice competition.
Term
Product Differentiation
Definition
A strategy in which one firm's product is distinquished from competing products by means of its design, related services, quality, location, or other attributes (except price).
Term
Nonprice Competition
Definition
Competition based on distinguishing one's product by means of product differentiation and then advertising the distinguished product to consumers.
Term
Four-Firm Concentration Ratio
Definition
The percentage of total industry sales accounted for by the top four firms in the industry.
Term
Herfindahl Index
Definition
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.
Term
Excess Capacity
Definition
Plant resources that are underused when imperfectly competitive firms produces less output than that associated with achieving minimum average total cost.
Term
Oligopoly
Definition
A market structure in which a few firms sell either a standardized or differeniated product, into which entry is difficult, in which the firm has limited control over product price because of mutual interdependance (except when there is collusion among firms), and in which there is typically nonprice competition.
Term
Homogeneous Oligopoly
Definition
An oligopoly in which the firms produce a standardized product.
Term
Differentiated Oligopoly
Definition
An oligopoly in which the firms produce a differentiated product
Term
Strategic Behavior
Definition
Self-interested economic actions that take into account the expected reactions of others.
Term
Mutual Interdependence
Definition
A situation in which a change in price strategy (or in some toher strategy) by one firm will afftect the sales and profits of another firm (or other firms). Any frim that makes such changes can expect the other rivals to react to the change.
Term
Interindustry Competition
Definition
The competition for sales between the products of one industry and the products of another industry.
Term
Import Competition
Definition
The competition that domesatic firms encounter from the products and services of foreign producers.
Term
Game theory
Definition
A means of analyzing the pricing behavior of oligopolists that uses the theory of strategy associated with games such as chess and bridge.
Term
Collusion
Definition
A situation in which firms act together and in agreement (collude) to fix prices, divide a market, or otherwise restrict competition.
Term
Kinked-Demand Curve
Definition
The demand curve for a noncollusive oligopolist, which is based on the assumption that rivals will match a price decrease and will ignore a price increase.
Term
Price War
Definition
Successive and continued decreases in the prices charged by firms in anoligopolistic industry. Each firm lowers its price below rivals' prices, hoping to increase its sales and revenues at its rivals' expense.
Term
Cartel
Definition
A formal agreement among firms (or countries) in an industry to set the price of a product and establish the output of the individual firms (or countries) or to divide the market for the product geographically.
Term
Price Leadership
Definition
An informal method that firms in an oligopoly may employ to set the price of their product: one firm (the leader) is the first to announce a change in price, and the other firms (the followers) soon announce identical or similar changes.
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