4. Oligopoly Flashcards Preview

ECON2010 Industrial Economics > 4. Oligopoly > Flashcards

Flashcards in 4. Oligopoly Deck (31)
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1
Q

What are the two classic static models?

A

Cournot and Bertrand

2
Q

Nash equilibrium

A

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

3
Q

Best responses

A

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

4
Q

In a regular case if qj increases what happens to qi

A

qi decreases, MR(qi) decreases

5
Q

How is market share illustrated?

A

qi/Q

6
Q

When is the Cournot model used?

A

When quantity is set simultaneously

7
Q

When is the bertrand model used?

A

When prices are chosen simultaneously

8
Q

What is the outcome of the bertrand model?

A

Firms set p=mc and make no profits

9
Q

When does the bertrand model result in profits?

A

When there are small capacity constraints such that (Ki

10
Q

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

A

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

11
Q

Subgame perfect nash equilibrium

A

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

12
Q

Complete contingency plan

A

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

13
Q

What is efficient rationing?

A

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

14
Q

In the Bertrand model what does a higher t mean?

A

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

15
Q

What does the full hotelling model allow?

A

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

16
Q

How do we use backwards induction in the full hotelling model?

A
  • solve for NE prices given location
  • equilibrium locations will be decided while considering resultant NE prices
  • solving in this way will deliver SPNE in locations and prices
17
Q

Which firms does the dynamic Bertrand competition model with repetition apply to?

A

Those firms that provide services for non durable goods and compete for customers repeatedly

18
Q

What is the outcome of the dynamic Bertrand competition with finite repetition?

A

There is no cooperation, both firms defect in all periods

19
Q

What is the outcome of the dynamic Bertrand competition with infinite repetition?

A

Cooperation is possible as long as the discount rate is sufficiently high

20
Q

How does the introduction of more firms effect the likelihood of cooperation in the Bertrand competition model with repetition?

A

The more firms there are the less likely cooperation is since the payoff from colluding is smaller

21
Q

How does lag times in price changes effect the likelihood of cooperation in the Bertrand competition model with repetition?

A

The greater the lag time the higher the discount rate needs to be and the less likely cooperation will occur

22
Q

When do we use stackelberg competition?

A

When firms compete over quantity sequentially

23
Q

When is competition over quantity more likely to happen?

A

In the LR since in the SR firms have sticky or fixed production capacities

24
Q

In Bertrand competition is there an advantage to moving first?

A

No

25
Q

How do we solve stackelberg competition?

A

We solve for its SPNE by backwards induction, first solving for firm 2’s BR to q1 then finding q1

26
Q

Which mover in stackelberg competition makes more profit?

A

The first mover

27
Q

What is the incumbent firm?

A

The firm who moves first

28
Q

What is required for an incumbent firm to keep out a potential entrant?

A

A fixed cost

29
Q

What is a blockaded entry?

A

Occurs when the fixed cost is so high that any entry for firm 2 causes negative profit so firm 1 acts as a monopolist

30
Q

What is accommodated entry?

A

When the profit for firm 1 of not allowing firm 2 to enter is smaller than it would be otherwise so they allow firm 2 to enter

31
Q

What is incumbent predation?

A

Firm 1 commits to a quantity which fights off firm 2’s entry