chapter 8- oligopoly Flashcards
what are the characteristics of an oligopoly
. few firms dominate the market
intderdepdnece and comepitvness between the firms
products ar homogenous or different
high barriers to entry
when is equilibrium achieved
s achieved when each firm is doing its best
and has no reason to change its output or pricing
decision
what is the corunot model
is a classic economic model of quantity
competition between two firms, known as a duopoly. In this model
each firm chooses its output level or quantity, and the market
determines the price based on the total supply of both firm
assumptions of the corunot model
- Both firms produce homogeneous (identical) products.
- Each firm knows its own total cost, the total cost of the other firm,
and the market demand
non collusive strategy
A firm chooses its output level
independently but is aware of the other firm’s output level. Each
firm first assumes the other firm’s output choice and then selects
its profit-maximizing output level based on this assumption
simultaneous game strategy
All firms choose their output level at the
same time
what is a reaction function
also known as a best-response function,
shows the relationship between a firm’s profit-maximizing
output level and the output level produced by another firm in
the market.
why is cournot eq considered stable equikbirum
At this point, each firm is
producing its profit-
maximizing output given
the output level of the other
firm.
* In other words, neither firm
has an incentive to change
its output level because
doing so would not result in
a higher profit
the stackleberg model is
is a sequential quantity-
setting game
can arise when one firm
enters a market before the other firm or when the
government allows one firm to determine its output
first.
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price leadership model
There is only one dominant firm in the market that can control and price
and set the market price.
* The other smaller firms accept the dominant firm’s price, thereby acting
as price takers
