All flashcards
Flashcard 1: Identify a feature of the Stackelberg model.
Answer: Leader-follower dynamics in output competition. Leader moves first, follower responds optimally to leader's choice.
Flashcard 2: What is a zero-sum game?
Answer: A game where one player's gain is another's loss. Total gains and losses in the game sum to zero.
Flashcard 3: What role does information play in oligopoly markets?
Answer: Incomplete information affects firms' decisions. Uncertainty about rivals' actions complicates strategic decision-making.
Flashcard 4: Which scenario best exemplifies a strategic barrier to entry?
Answer: Predatory pricing. Temporarily pricing below cost to drive competitors out of market.
Flashcard 5: What is a dominant strategy?
Answer: A strategy that is best regardless of what others do. Optimal choice remains unchanged regardless of competitors' actions.
Flashcard 6: What is the main objective of collusion among firms?
Answer: To increase profits by reducing competition. Joint profit maximization through coordinated pricing and output decisions.
Flashcard 7: What does it mean for a firm to be a price taker?
Answer: It accepts the market price as given. Has no influence over market price due to small market share.
Flashcard 8: Which option best describes a sequential game?
Answer: Players make decisions at different times. Order of moves matters for determining optimal strategies.
Flashcard 9: What is a duopoly?
Answer: An oligopoly with exactly two firms. Special case of oligopoly with maximum strategic interaction.
Flashcard 10: Identify a strategy to maintain collusion in an oligopoly.
Answer: Monitoring and enforcing agreements. Surveillance and punishment mechanisms prevent cheating on agreements.
Flashcard 11: What is the significance of the Cournot equilibrium?
Answer: It predicts output levels in oligopoly. Determines stable output levels when firms compete on quantity.
Flashcard 12: What is a tit-for-tat strategy?
Answer: Cooperating in the first move, then mimicking the opponent. Promotes cooperation by rewarding cooperation and punishing defection.
Flashcard 13: Define 'price leadership' in oligopoly.
Answer: One firm sets prices for others to follow. Dominant firm acts as price setter while others become price followers.
Flashcard 14: What does 'mutual interdependence' mean in oligopoly?
Answer: Firms' decisions affect each other's outcomes. Each firm's actions directly influence competitors' profits and strategies.
Flashcard 15: Identify a real-world example of a cartel.
Answer: OPEC in the oil market. Organization coordinates oil production to control global prices.
Flashcard 16: What is the significance of a Nash Equilibrium?
Answer: No player can benefit by changing strategy unilaterally. Each player's strategy is optimal given others' strategies.
Flashcard 17: State the formula for calculating HHI.
Answer: HHI=sum of the squares of market shares. Market shares are squared then summed to measure concentration.
Flashcard 18: Which factor leads to price stickiness in oligopolies?
Answer: Fear of price wars. Competitors match price cuts but not price increases.
Flashcard 19: What is a mixed strategy in game theory?
Answer: Using probabilities to choose among actions. Randomizes between pure strategies to keep opponents guessing.
Flashcard 20: What is the Herfindahl-Hirschman Index (HHI)?
Answer: A measure of market concentration. Higher values indicate greater market concentration and less competition.
Flashcard 21: Identify a feature of the Stackelberg model.
Answer: Leader-follower dynamics in output competition. Leader moves first, follower responds optimally to leader's choice.
Flashcard 22: What is the 'first-mover advantage'?
Answer: The benefit of being the first to act in a strategic situation. Early action can secure better market position or higher profits.
Flashcard 23: Identify the typical number of firms in an oligopoly.
Answer: Few, typically 3 to 5. Small enough for strategic interaction but large enough to avoid monopoly.
Flashcard 24: In game theory, what is a strategy?
Answer: A complete plan of action for every contingency. Specifies what action to take in every possible game situation.
Flashcard 25: What is the payoff matrix?
Answer: A table that shows payoffs for each strategy combination. Visual tool showing outcomes for all possible strategy combinations.
Flashcard 26: Which concept describes the mutual interdependence of firms?
Answer: Strategic interaction. Firms must consider rivals' likely responses when making decisions.
Flashcard 27: Which option best describes tacit collusion?
Answer: Unspoken understanding to avoid competition. Implicit coordination without formal agreements to avoid detection.
Flashcard 28: State the formula for profit in oligopoly.
Answer: Profit=Total RevenueâTotal Cost. Basic profit calculation applies to all market structures including oligopoly.
Flashcard 29: What is collusion?
Answer: An agreement among firms to limit competition. Can be explicit (formal) or tacit (unspoken understanding).
Flashcard 30: Which term describes a firm that acts as a price leader?
Answer: Dominant firm. Sets prices that smaller firms typically follow in the market.