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is an industry with only a small number of producers. A producer in such an industry is known an oligopolist. |
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when no one firm has a monopoly, but producers nonetheless realize that they can affect market prices, an industry is characterized by imperfect competition. |
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consisting of only two firms is a duopoly. Each firm is known as a duopolist. |
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sellers engage in collusion when they cooperate to raise their joint profits. |
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| an agreement among several producers to obey output restrictions in order to increase their joint profits. |
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| when firms ignore the effects of their actions on each others’ profits they engage in noncooperative behavior. |
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-Interdependence
-Game Theory |
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| when a firms decision significantly affects the profits of other firms in the industry, the firms are in a situation of interdependence. |
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| study of behavior in situations of interdependence |
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| the reward received by a player in a game, such as the profit earned by an oligopolist, is the player’s payoff. |
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| shows how the payoff to each of the participants in a two- player game depends on the actions of both. Such a matrix helps us analyze situations of interdependence. |
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| an action is a dominant strategy when it is a player’s best action regardless of the action taken by the other player. |
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Nash Equilibrium
(Noncooperative Equilibrium) |
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is the result when each player in a game chooses the action that maximizes his or her payoff given the actions of other players, ignoring the effects of his or her action on the payoffs received by those other players. |
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a firm engages in strategic behavior when it attempts to influence the future behavior of other firms. |
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| when firms limit production and raise prices in a way that raises each others profits, even though they have not made any formal agreement, they are engaged in tacit collusion |
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