In an oligopoly of just a few firms, each firm's profit depends noticeably on what its rivals do, creating strategic interdependence.

An oligopoly consisting of exactly two firms, each called a duopolist.

When firms cooperate to raise their combined profits, usually by restricting output to push prices up.

A group of producers that formally agrees to coordinate output and prices so as to behave like a single monopoly, such as OPEC.

When firms each act in their own individual interest instead of colluding, even though cooperating would raise their joint profits.

The study of behavior in situations of interdependence, where each participant's best move depends on what the others do.

The reward a player receives from a particular outcome of a game.

A table showing how each player's payoff depends on both its own action and the other player's action.

A game in which each player has an incentive to act in its own interest, producing an outcome that is worse for both than mutual cooperation would be.

An action that is a player's best choice no matter what the other player does.

An outcome, also called a noncooperative equilibrium, in which every player is doing the best it can given the others' actions, so no one wants to change unilaterally.

Actions a firm takes to shape the future behavior of its rivals, especially in games played repeatedly.

A repeated-game strategy of starting cooperatively and then copying whatever the rival did last round; it often sustains tacit collusion.

When firms keep output low and prices high without any explicit agreement, simply by anticipating one another's behavior.

Government efforts to keep firms from colluding and acting like monopolies.

A breakdown of tacit collusion in which firms repeatedly undercut each other, driving prices sharply down.

A pattern in which one firm sets a price and the others follow, coordinating behavior without an explicit agreement.

Competing for customers through means other than price, such as advertising or added features, so as to avoid setting off price wars.

Collusion is harder to sustain when there are many firms, products and prices are complex, firms' interests differ, or buyers have strong bargaining power.

A market structure with many firms selling differentiated products and free entry and exit in the long run.

Short-run profits draw in new firms, shifting each existing firm's demand curve left, while losses drive some firms out, shifting the remaining firms' demand curves right.

The long-run outcome of monopolistic competition, where each firm's demand curve is just tangent to its average total cost curve, so profits are zero and there is no entry or exit.

The tendency of monopolistically competitive firms to produce less than the minimum-cost output, leaving them with higher average costs than perfectly competitive firms.

In monopolistic competition, firms charge a price above marginal cost even in long-run equilibrium.

It leaves firms with excess capacity and prices above marginal cost, but whether this is truly inefficient is ambiguous because consumers value the product variety it provides.

Firms distinguish their products from rivals' by style or type, by location, or by quality.

Spending meant to raise demand for a product and strengthen a firm's market power; it helps society when it conveys useful information but can be wasteful when its only purpose is to create market power.

A name identifying a producer's goods; brand names can reassure buyers about quality but can also be used mainly to build market power.

The Organization of the Petroleum Exporting Countries is the best-known real-world cartel, coordinating oil output among member nations to influence world prices.

In the 1990s vitamin makers such as BASF and Roche ran an illegal price-fixing cartel, a real case of collusion later broken up by antitrust enforcement.