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Game Theory and Oligopoly Profit definitions

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  • Oligopoly
    A market structure with a few firms whose decisions are mutually dependent, leading to strategic behavior and interdependence.
  • Duopoly
    A special case of oligopoly with only two producers, where each firm's actions directly affect the other's outcomes.
  • Interdependence
    A situation where firms must consider rivals' choices when making decisions, as outcomes are linked.
  • Collusion
    An agreement among firms to coordinate output or pricing to maximize joint profits, often mimicking monopoly outcomes.
  • Monopoly
    A market with a single producer, allowing maximum profit and control over output and price.
  • Perfect Competition
    A market with many firms, where price equals marginal cost and profits are driven to zero.
  • Marginal Cost
    The additional expense incurred from producing one more unit, which is zero in the discussed example.
  • Demand Curve
    A graphical representation showing the inverse relationship between price and quantity demanded.
  • Payoff Matrix
    A table summarizing possible outcomes for each player based on their choices and those of their rival.
  • Dominant Strategy
    A choice that yields the highest payoff for a player regardless of the rival's actions.
  • Nash Equilibrium
    A scenario where no player can improve their outcome by changing their strategy, given the other's choice.
  • Prisoner's Dilemma
    A situation where rational self-interest leads to worse outcomes than cooperation, despite mutual benefit from collusion.
  • Revenue
    The total income from sales, equal to profit when production costs are absent.
  • Industry Profit
    The combined earnings of all firms in a market, which can decrease with increased competition or cheating.
  • Market Power
    The ability of a firm to influence price and output, highest in monopoly and reduced in oligopoly.