Download Economics of Market Structures: Monopolies, Oligopolies, and Competition and more Quizzes Economics in PDF only on Docsity!
This system of market structure is based on two dimensions: the number of firms in the market (one, few, or many) whether the goods offered are identical or differentiated TERM 2
Price-taking firm
DEFINITION 2 A price-taking firm is a firm whose actions have no effect on the market price of the good or service it sells. TERM 3
Price-taking consumer
DEFINITION 3 A price-taking consumer is a consumer whose actions have no effect on the market price of the good or service he or she buys. TERM 4
Perfectly competitive market
DEFINITION 4 A perfectly competitive market is a market in which all market participants are price-takers. TERM 5
Perfectly competitive industry
DEFINITION 5 A perfectly competitive industry is an industry in which firms are price-takers.
A firms market share
A firms market share is the fraction of the total industry output accounted for by that firms output. TERM 7
standardized product
DEFINITION 7 A good is a standardized product , also known as a commodity , when consumers regard the products of different firms as the same good. TERM 8
free entry and exit
DEFINITION 8 An industry has free entry and exit when new firms can easily enter into the industry and existing firms can easily leave the industry. TERM 9
monopolist
DEFINITION 9 A monopolist is the only producer of a good that has no close substitutes. An industry controlled by a monopolist is known as a monopoly. TERM 10
barrier to entry
DEFINITION 10 To earn economic profits, a monopolist must be protected by a barrier to entry something that prevents other firms from entering the industry.
imperfect competition.
When no one firm has a monopoly, but producers nonetheless realize that they can affect market prices, an industry is characterized by imperfect competition. TERM 17
Concentration ratios
DEFINITION 17 Concentration ratios measure the percentage of industry sales accounted for by the X largest firms, for example the four-firm concentration ratio or the eight-firm concentration ratio.Lets say that the largest four firms account for 25%, 20%, 15%, and10% of industry sales; then the four-firm concentration ratios would equal 70 =(25+20+15+10) TERM 18
Herfindahl-Hirschman Index
DEFINITION 18 Herfindahl-Hirschman Index , or HHI, is the square of each firms share of market sales summed over the industry. It gives a picture of the industry market structure.For example, if an industry contains only 3 firms and their market shares are 60%, 25%, and 15%, then the HHI for the industry is:HHI = 602 + 252 + 152 = 4, TERM 19
Monopolistic
competition
DEFINITION 19 Monopolistic competition is a market structure in which there are many competing firms in an industry, each firm sells a differentiated product, and there is free entry into and exit from the industry in the long run. TERM 20
Differentiated Products
DEFINITION 20 In a monopolistically competitive industry, each firm has a product that consumers view as somewhat distinct from the products of competing firms. Such product differentiation can come in the form of different styles or types,
duopoly
An oligopoly consisting of only two firms is a duopoly. Each firm is known as a duopolist. TERM 22
collusion
DEFINITION 22 Sellers engage in collusion when they cooperate to raise their joint profits. A cartel is a group of producers that agree to restrict output in order to increase prices and their joint profits. TERM 23
noncooperative behavior.
DEFINITION 23 When firms ignore the effects of their actions on each others profits, they engage in noncooperative behavior. TERM 24
game theory.
DEFINITION 24 The study of behavior in situations of interdependence is known as game theory. TERM 25
payoff.
DEFINITION 25 The reward received by a player in a game, such as the profit earned by an oligopolist, is that players payoff.
A strategy of tit for tat.
A strategy of tit for tat involves playing cooperatively at first, then doing whatever the other player did in the previous period. TERM 32
tacit collusion.
DEFINITION 32 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. TERM 33
Antitrust policy
DEFINITION 33 Antitrust policy involves efforts by the government to prevent oligopolistic industries from becoming or behaving like monopolies. TERM 34
trust
DEFINITION 34 trust. In a trust, shareholders of all the major companies in an industry placed their shares in the hands of a board of trustees who controlled the companies. This, in effect, merged the companies into a single firm that could then engage in monopoly pricing. TERM 35
price
war
DEFINITION 35 A price war occurs when tacit collusion breaks down and aggressive price competition causes prices to collapse.
Product differentiation
Product differentiation is an attempt by a firm to convince buyers that its product is different from the products of other firms in the industry. TERM 37
In price leadership
DEFINITION 37 In price leadership , one firm sets its price first, and other firms then follow. TERM 38
nonprice
competition
DEFINITION 38 comptetition via new product features and advertisingespecially in tacit understanding of no price changes TERM 39
A positive quantity effect
DEFINITION 39 A positive quantity effect: one more unit is sold, increasing total revenue by the price at which that unit is sold. TERM 40
A negative price effect
DEFINITION 40 A negative price effect: in order to sell one more unit, the monopolist must cut the market price on all units sold.
