Oligopoly and Market Structures

An economic scenario where firms have to anticipate and react to the strategic moves of their competitors, as their choices significantly impact each other.

The market structure characterized by a few firms that are interdependent and have a significant influence on the market price and output.

A model that explains price rigidity in oligopoly. Firms are reluctant to raise prices, fearing competitors will not follow, but they are also hesitant to lower prices, as competitors will likely match the price reduction.

A situation where firms in an oligopoly implicitly understand their interdependency and avoid engaging in cutthroat competition, instead opting to maintain relatively stable prices and market shares.

A situation where firms in an industry face uncertainty about the actions and reactions of their competitors, leading to multiple plausible outcomes based on different strategic choices and responses.

A situation where no player has an incentive to unilaterally change their strategy, as doing so would not improve their outcome.

A model where two firms compete by setting prices, assuming the other firm's price remains constant. Customers always buy from the lowest-priced firm.

A situation where firms sell identical products. Consumers are indifferent to the brand they purchase.

The cost of producing one additional unit of output.

The relationship between the price of a good and the quantity demanded by consumers.

The price and quantity combination where the quantity supplied equals the quantity demanded.

The idea that in a perfectly competitive market, firms will set their price equal to their marginal cost.

The strategy of setting a price slightly lower than a competitor's to gain market share.

The change in total revenue (TR) resulting from selling one more unit of a good or service. It is calculated as the difference in total revenue divided by the difference in quantity.

The additional cost incurred when producing one more unit. In this example, it represents the cost of carrying one more passenger.

The point where EasyJet maximizes its profit, where its marginal revenue (MRE) equals its marginal cost (MCE).

The price point where EasyJet, with its lowest cost structure, should charge to capture the largest market share.

The price point where RyanAir, with its higher costs, should charge to make a profit in response to EasyJet's lower pricing.

The process of airlines continuously adjusting their prices in response to each other's moves. This leads to alternating price cuts or increases to capture market share or ensure profitability.

The quantity of tickets EasyJet sells when its price is equal to RyanAir's price.

The point where RyanAir's marginal revenue (MRR) equals its marginal cost (MCR). This is the price point where RyanAir maximizes its profits.

A model that predicts market outcomes by assuming firms compete over quantities, where each firm maximizes profit based on the assumption that rivals will maintain their previous period's output.

The portion of the market demand curve left for a firm after considering the output of its rivals. It represents the potential demand the firm can serve given the output choices of other firms in the market.

A key assumption in the Cournot model where each firm assumes that the rival firms will not change their output level from the previous period.

The process where firms respond to each other's output decisions in a sequential manner, leading to adjustments in output levels and market price.

The point at which firms in a Cournot model reach a stable equilibrium, where no firm has an incentive to change its output level given the output of its rivals.

The profit-maximizing output level for a firm under the Cournot model, determined by the intersection of the marginal revenue curve and the marginal cost curve.

The market price that arises in the Cournot equilibrium, determined by the intersection of the aggregate output of all firms with the market demand curve.

The condition in which neither firm can increase its profits by unilaterally changing its output level given the output of its rivals.

The process by which the firms in a Cournot model move towards the Cournot equilibrium, through a series of output adjustments.

A strategy in which a firm sets its output level assuming that its rivals will maintain their previous period's output.

The situation where firms in an oligopoly collude to restrict output and raise prices, acting like a monopoly. This can lead to higher profits for the firms, but it is often unstable as firms have an incentive to cheat on the agreement.

The tendency for firms in an oligopoly to cheat on a collusive agreement by producing more output than agreed upon, in an attempt to gain a larger share of the market. This often leads to the breakdown of collusion and a fall in industry profits.

In a Cournot duopoly, each firm's profit-maximizing output level is determined by the intersection of its marginal revenue curve with its marginal cost curve.

The reaction function is a model that shows how a firm's profit-maximizing output changes in response to changes in the output level of the other firm in the duopoly.

The market price in a Cournot duopoly is determined by the total output produced by both firms and the market demand curve.

A duopoly is a market structure where there are only two firms competing with each other to sell the same product.

The concept of a firm's output calculation being incorrect in a particular period due to the other firm reacting to the previous period's output decision, leading to subsequent adjustments.

The total profit earned by a firm in a Cournot duopoly is calculated by multiplying its profit per unit by the quantity of units sold.

The process of firms adjusting their output decisions in a subsequent period based on the previous period's output decisions and the market price, leads to a more accurate and stable equilibrium through repeated adjustments.