Chapter 11 Monopolistic Competition and Oligopoly

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1. cartel a formal agreement among firms (or 13. mutual a situation in which a change in price
countries) in an industry to set the price of a interdependence strategy (or in some other strategy) by
product and establish the outputs of the one firm will affect the sales and profits
individual firms (or countries) or to divide the of another firm (or other firms). Any firm
market for the product geographically that makes such a change can expect the
other rivals to react to the change
2. collusion a situation in which firms act together and in
agreement to fix prices, divide a market, or 14. nonprice competition based on distinguishing one's
otherwise restrict competition competitition product by means of product
differentiation and then advertising the
3. differentiated an oligopoly in which the firms produce a
distinguished product to consumers
oligopoly differentiated product
15. oligopoly a market structure in which a few firms
4. excess plant resources that are underused when
sell either a standardized or differentiated
capacity imperfectly competitive firms produce less
product, into which entry is difficult, in
output than that associated with achieving
which the firm has limited control over
minimum average total cost
product price because of mutual
5. four-firm the percentage of the total industry sales interdependence (except when there is
concentration accounted for by the four largest firms in the collusion among firms), and in which
ratio industry. there is typically nonprice competition
6. game theory a means of analyzing the business behavior 16. price leadership an informal method that firms in an
of oligopololists that uses the theory of oligopoly may employ to set the price of
strategy associated with games such as their product: One firm (the leader) is the
chess or bridge first to announce a change in price, and
7. Herfindahl a measure of the concentration and the other firms (the followers) soon
index competitiveness of an industry; calculated as announce identical or similar changes.
the sum of the squared percentage market 17. price war successive and continued decreases in
shares of the individual firms in the industry the prices charged by firms in an
8. homogeneous an oligopoly in which the firms produce a oligopolistic industry. each firm lowers its
oligopoly standardized product price below rivals' prices, hoping to
increase its sales and revenues at its
9. import the competition that domestic firms
rivals' expense
competition encounter from the products and services of
foreign producers 18. product a strategy in which one firm's product is
differentiation distinguished from competing products
10. interindustry the competition for sales between the
by means of its design, related services,
competition products of one industry and the products of
quality, location, or other attributes
another industry
(except price)
11. kinked- the demand curve for a non-collusive
19. strategic self-interested economic actions that take
demand war oligopolist, which are based on the
behavior into account the expected reactions of
assumption that rivals will match a price
others
decrease and ignore a price increase
12. monopolistic a market structure in which many firms sell a
competition 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