Key Terms

cartel: a group of firms that collude to produce the monopoly output and sell at the monopoly price

collusion: when firms act together to reduce output and keep prices high

differentiated product: a product that consumers perceive as distinctive in some way

duopoly: an oligopoly with only two firms

game theory: a branch of mathematics that economists use to analyze situations in which players must make decisions and then receive payoffs based on what decisions the other players make

imperfectly competitive: firms and organizations that fall between the extremes of monopoly and perfect competition

kinked demand curve: a perceived demand curve that arises when competing oligopoly firms commit to match price cuts, but not price increases

monopolistic competition: many firms competing to sell similar but differentiated products

oligopoly: when a few large firms have all or most of the sales in an industry

prisoner’s dilemma: a game in which the gains from cooperation are larger than the rewards from pursuing self-interest

product differentiation: any action that firms do to make consumers think their products are different from their competitors’

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