cartel   a group of producers in the same industry who coordinate pricing and production decisions.
cooperative outcome  an equilibrium in a game where the players agree to cooperate.
excess capacity  a situation in which a firm produces below the level that gives the minimum average total cost.
excess costs  costs of production that are higher than the minimum average total cost.
explicit collusion  open cooperation of firms to make mutually beneficial pricing or production decisions.
game theory  a branch of applied mathematics with many uses in economics, including the analysis of the interaction of firms that take each other’s actions into account.
interindustry trade  trade between countries in goods from different industries.
monopolistic competition  a market structure characterized by many firms selling differentiated products in an industry in which there is free entry and exit.
noncooperative outcome  an equilibrium in a game where the players cannot agree to cooperate and instead follow their individual incentives.
oligopoly  an industry characterized by few firms selling the same product with limited entry of other firms.
price leader  the price-setting firm in a collusive industry in which other firms follow the leader.
prisoner’s dilemma  a game in which individual incentives lead to a nonoptimal (noncooperative) outcome. If the players can credibly commit to cooperate, then they achieve the best (cooperative) outcome.
product differentiation  the effort by firms to produce goods that are slightly different from other types of goods.
strategic behavior  firm behavior that takes into account the market power and reactions of other firms in the industry.
tacit collusion  implicit or unstated cooperation of firms to make mutually beneficial pricing or production decisions.