# 4. Oligopoly Flashcards

What are the two classic static models?

Cournot and Bertrand

Nash equilibrium

A pair of strategies such that neither firm can increase its profit by varying its output, given the output choice of the other firm

Best responses

The profit maximising choice of output for any output produced by the other firm

In a regular case if qj increases what happens to qi

qi decreases, MR(qi) decreases

How is market share illustrated?

qi/Q

When is the Cournot model used?

When quantity is set simultaneously

When is the bertrand model used?

When prices are chosen simultaneously

What is the outcome of the bertrand model?

Firms set p=mc and make no profits

When does the bertrand model result in profits?

When there are small capacity constraints such that (Ki

What is the outcome of the bertrand model when capacities equal cournot output?

Cournot prices are set. Each firm acts as a monopolist on their residual demand curve

Subgame perfect nash equilibrium

A strategy profile where no firm has a unilateral incentive to change its market strategy in any sub game of a larger game that is played over time

Complete contingency plan

A strategy specifies what a firm will do in any contingency that will require a decision

What is efficient rationing?

It maximises the number of goods sold, maximises producer surplus (profit) and there is a 1 to 1 trade off in produce and condumer surplus in this market

In the Bertrand model what does a higher t mean?

More product differentiation. Therefore the firms compete less and charge higher prices

What does the full hotelling model allow?

It allows firms to choose both price and locations in a two period game where firms choose locations first