Monopolies & Oligopolies


Terms

Pure monopoly  -  A firm that satisfies the following conditions:
  1. It is the only supplier in the market.
  2. There is no close substitute to the output good.
  3. There is no threat of competition.
Natural monopoly  -  A firm with such extreme economies of scale that once it begins creating a certain level of output, it can produce more at a lower cost than any smaller competitor. Generally characterized by a declining average cost curve.
Economies of scale  -  Savings acquired through increases in quantity produced. Oftentimes, large firms in industries with high fixed costs can take advantage of savings that smaller firms cannot.
Price taker  -  An agent who takes prices as given. For instance, a firm who faces a perfectly flat demand curve has no choice but to sell at one price. This firm is a price taker.
Perfect competition  -  A market operates under perfect competition if it satisfies the following conditions:
  1. Numerous firms
  2. Freedom of entry and exit
  3. Homogeneous output
  4. Perfect information
Deadweight loss  -  The dollar amount of social surplus that goes unrealized as compared to the socially optimal solution.
Price setter  -  The opposite of a price taker; a price setter has the power to set prices. For instance, a firm who faces a downward sloping demand curve can choose price.
Socially optimal  -  Describes points at which social surplus is maximized, social surplus being the combined utilities of the firms and the public.
Oligopoly  -  A market dominated by a small number of firms. At least several of these firms are large enough to influence the market price.
Duopoly  -  A market dominated by two firms. Both firms are large enough to influence the market price.
Cournot duopoly  -  A model of duopolies under which two firms simultaneously choose the quantity to produce.
Stackelberg duopoly  -  A model of duopolies under which two firms choose the quantity to produce with one firm choosing before the other in an observable manner.
Bertrand duopoly  -  A model of duopolies under which two firms simultaneously choose the price for a good.
Cartel  -  A small number of independent firms who act together to set monopoly prices and make monopoly profits.
Public information  -  Information known to everyone.
Reaction curve  -  A reaction curve is a function that takes as input the moves of the other players and returns the optimal move given the other players' moves.
Nash equilibrium  -  An equilibrium in which all players are playing their best responses to everyone else's best response.

Take a Study Break

SparkLife

Star Trek gets SEXY

Chris Pine and Zoe Saldana heat up the red carpet!

SparkLife

Are you afraid of relationships?

Auntie SparkNotes can help!

SparkLife

Wanna get JLaw's gorgeous glow?

Click here for simple, sexy makeup tricks!

SparkLife

Sexy starlet style

See every single look from the Met Gala!

SparkLife

Who'd be on your zombie-apocalypse crew?

We already dib'sed Genghis Khan.

Geek out!

The MindHut

Geeky Actresses: Then and Now

Before the fame!

The MindHut

9 Scientific Inaccuracies in Iron Man 3

Click to see what they got wrong.

The MindHut

Top 10 Predictions Sci-Fi Got WRONG

So wrong, they're WRONG.

The MindHut

The 15 Most Awesome Robots, Ever

These Robots Rock!

The MindHut

If You Like Game of Thrones...

...Then you'll LOVE these books!

The Book

Cover image

Read What You Love, Anywhere You Like

Get Our FREE NOOK Reading Apps