Oligopoly and Games Flashcards
(9 cards)
1
Q
What is the cournot model
A
Oligopoly model in which each firm chooses the best output given the output
2
Q
The profit-maximising cournoy duopolist
A
- Given output of rival firm Q2, firm faces residual demand curve and mr curve
- Produces at q1*= MR1=MC=0
3
Q
Equilibrium for Cournot Duopoly Explanation
A
- Each firm has a reaction function that shows the profit max output for each amount supplied by another
- Equilibrium is where firm 1 and 2’s reaction function intersect- This is nash eqilibrium
4
Q
Within the cournot framework, give constant MC what determines performance (how close P is to MC)
A
Market structure
5
Q
What is the stackelberg model
A
- Firms choose output sequentially not simultaneously
- Follower behaves like a cournot duopolist- chooses best output given that of the leader
6
Q
How is stackelberg equilibrium formed
A
- Leader ignores its own reaction function and chooses it output given the reaction function of follower
- Leader produces more knowing follower will accomodate decision- more competitive outcome
7
Q
What is the Bertrand model
A
Oligopoly model in which each firm takes the rival’s price as given
- Bertrand equilibrium is a Nash equilibrium played in prices
8
Q
How is the Bertrand Equilibrium formed
A
- Each firm’s choice is optimal given the choice of the other firm
- At equilibrium, firms set P=MC and make zero economic profits, same as perfect competition
9
Q
Compare equilibrium price and quantity of cournot, stackelberg and Bertrand/ perfect comp
A
