| Term | Definition |
|---|
| Concentration Ratio | A measure of market power - the percentage of all sales that is accounted for by the four or eight largest firms in the market |
| Unbalanced Oligopoly | An oligopoly in which the sales of the leading (top four) firms are distributed unevenly among them. |
| Balanced Oligopoly | An oligopoly in which the sales of the leading (top four) firms are relatively balanced among them. |
| Merger | A combination of two or more companies into one company. |
| Horizontal Merger | A merger between two firms in the same industry. Example: 2004 K-Mart merged with Sears |
| Vertical Merger | A merger between firms who have a buyer/supplier relationship. Example: BFGoodrich merging with rubber plantations. |
| Conglomerate Merger | A merger of firms in unrelated industries. Example: If Purina Dow Chow merged with Pampers Diaper Company. |
| Joint Venture | A business arrangement in which two or more firms undertake a specific economic activity together. Once the activity is over, the firms go their own way. |
| Cartel | A group of firms that collude to limit competition in a market by negotiating and accepting agreed-upon prices and market shares. |
| Collusion | An agreement among firms in a market about quantities to produce or prices to charge in attempts to limit competition. |
| Payoff Matrix | A table that shows the payoffs that each firm earns from every combination of strategies by the firms. |
| Game Theory | The theory that studies decision making in situations in which one player anticipates the reactions of other players to its own actions. Firms are mutually interdendent. |
| Nash Equilibrium | Any combination of strategies in which each players' strategy is his or her best choice, given the other players' strategies. |
| Tit-for-Tat Strategy | A pricing strategy in game theory in which firms continue to match each others' pricing strategy. |
| Mutual Interdependence | The situation that exists when two or more groups need each other and must depend on each other to accomplish a goal that is important to each of them |
| Prisoners' Dilemma | A particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial to do so. |
| Price Leadership | A firm whose price decisions are tacitly accepted and followed by others in the industry. |
| Godfather | The dominate firm in the oligopoly, whose pricing decisions are tacitly followed. The Godfather is the price leader. |
| Kinked Demand Curve | The demand curve faced by an oligopolist. The curve is more elastic when the firm raises its price than when it lowers its price. |
| Brand Multiplication | Variations on one good so that a firm can increase market share. |
| Price Discrimination | Offering specific goods or services at different prices to different segments of the market. Example: First class versus business class on airlines. |
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