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Chapter 10 - Game Theory – An approach that analyzes...

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Chapter 10 – 12/10/07 Monopolistic Competition – a market structure with many firms selling products that are substitutes but different enough that each firm’s demand curve slopes downward; firms entry is relatively easy Excess Capacity – The difference between a firm’s profit maximizing quantity and the quantity that minimizes average cost Oligopoly – A market structure characterized by a few firms whose behavior is independent Undifferentiated Oligopoly – An oligopoly that sells a commodity, or a product that does not differ across suppliers, such as an ingot of steel or a barrel of oil Differentiated Oligopoly – An oligopoly that sells products that differ across suppliers, such as automobiles or breakfast cereal Collusion – An agreement among firms to increase economic profit by dividing that market or fixing the price Cartel – A group of firms that agree to coordinate their production and pricing decisions to act like a monopolist Price Leader – A firms whose price is adopted b other firms in the industry
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Unformatted text preview: Game Theory – An approach that analyzes oligopolistic behavior as a series of strategic moves and counter-moves by rival firms Prisoner’s Dilemma – A game that shows why players have difficultly cooperating even though they would benefit from cooperation Strategy – In game theory, the operational plan pursued by a player Payoff Matrix – In game theory, a table listing the payoffs that each player can expect based on the actions of the other players Dominant – Strategy Equilibrium – In game theory, the outcome achieved when each player’s choice does not depend on what the other player does Duopoly – A market with only two producers; a type of oligopoly market structure Tit for Tat – In game theory, a strategy in repeated games he a player in one round of the game mimics the other player’s behavior in the previous round; an optimal strategy for encouraging the other player to cooperate...
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