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Microeconomics CH 11
Vocab
20
Economics
Undergraduate 1
03/23/2009

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Term
Monopolistic Competition
Definition
A market structure in which many firms sell a differentiated 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 distinguished 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
Excess Capacity
Definition
Plant resources that are underused when imperfectly competitive firms produce 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 differentiated product, into which entry is difficult, in which the firm has limited control over product price because of mutual interdependence (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 reaction of others.
Term
Mutual Interdependence
Definition
A situation in which a change in price strategy (or in some other strategy) by one firm will affect the sales and profits of another firm. Any firm that makes such a change can expect the other rivals to react to the change.
Term
Concentration Ratio
Definition
The percentage of the total sales of an industry made by the four (or some other number) largest sellers in the industry.
Term
Interindustry Competition
Definition
The competition for sales between the products of one industry and the products of another 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
Game-Theory Model
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 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 an oligopolistic 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 outputs of the individual firms (or countries) or to divide the market for the product geographically.
Term
Tacit Understandings
Definition
Any method used by an oligopolist to set prices and outputs that does not involve outright collusion. Price leadership is a frequent example.
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.
Term
Import Competition
Definition
The competition that domestic firms encounter from the products and services of foreign producers.
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