OLIGOPOLY. Constant Returns to Scale: Unit cost of production = c (for both firms). Patrick Bajari Econ 4631 Oligopoly Models 29 / 55. Two identical firms: 1,2. In some cases, competition in terms of price changes seems more logical than quantity competition, especially in the short run. The auction models predict retail price dispersion as an observable feature of price discrimination. Unformatted text preview: Outline Cournot model of oligopoly Bertrand model of oligopoly Electoral competition War of attrition H. Eraslan (Rice) Strategic form games (2) Spring 2016, Econ 508 1/1 Example 1: Cournot model of oligopoly (Model) A single good is produced by n firms.The cost of producing qi units of the good for firm i is Ci (qi ). • A mutual best response for both firms is Ὄ 1 ∗, 2 ∗Ὅ=Ὄ , Ὅ where the two best response functions cross each other. – Duopoly - two firms – Triopoly - three firms § The products firms offer can be either differentiated or homogeneous. Therefore, no single, uni ed model of oligopoly exists I Cartel I Price leadership I Bertrand competition I Cournot competition Managerial Economics: Unit 6 - Oligopoly4/ 45. Consumers always purchase from the cheapest seller. Understanding Oligopoly Price competition and the Bertrand model French economist Joseph Louis Bertrand (1922-1900) The logic behind price competition is that when firms produce perfect substitutes and have sufficient capacity to satisfy demand when price is equal to marginal cost, then each firm will be compelled to engage in competition by Bertrand’s model leads to a stable equilibrium, defined by the point of intersection of the two reaction curves (figure 9.13). Bertrand Cournot versus Bertrand After these basic static models we will examine: Dynamic oligopoly and Self-enforcing Collusion Allan Collard-Wexler Econ 465 Market Power and Public Policy September 22, 2016 2 / 42. § Firms’ decisions impact one another. Industrial Organization ( Matt Shum HSS, California Institute of Technology)Lecture 5: Collusion and Cartels in Oligopoly 4 / 21 Considering this, Bertrand proposed an alternative to Cournot.Considering Bertrand’s model from a game theory perspective, it can be analysed as a … An example of a pure oligopoly would be the steel industry, which has only a few producers but who produce exactly the same product. If the total output is Q, then the price is P(Q). If the two selllers charge the same price then half of the consumers pur-chase from … Point e denotes a stable equilibrium, since any departure from it sets in motion forces which will lead back to point e at which the price charged by A … The Symmetric Bertrand Model in a Homogenous Good Market. Homogeneity of product. Identical product. COOPERATIVE BEHAVIOR: Cartel Cartel: A collusive arrangement made openly and formally Bertrand Model of Price Competition • A symmetric argument applies to the construction of the best response function of firm . § Many different strategic variables are modeled: – No single oligopoly model. The Simplest Model of Price Competition in a Duopoly: The Bertrand Model. 1 Oligopoly: Bertrand Model Bertrand model: There are two –rms and no entry is possible. • Pure oligopoly – have a homogenous product. Hirschman-Her–ndal Index Note that the HHI only measures market power under the assumptions of the Cournot model If the market involves di⁄erentiated products, then the HHI is a misleading measure. • This is the NE of the Bertrand model –Firms make no economic profits. • Impure oligopoly – have a differentiated product. Pure because the only source of market power is lack of competition. 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bertrand model of oligopoly pdf

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