• A mutual best response for both firms is Ὄ 1 ∗, 2 ∗Ὅ=Ὄ , Ὅ where the two best response functions cross each other. If the total output is Q, then the price is P(Q). • Pure oligopoly – have a homogenous product. Homogeneity of product. § Many different strategic variables are modeled: – No single oligopoly model. 1 Oligopoly: Bertrand Model Bertrand model: There are two –rms and no entry is possible. § Firms’ decisions impact one another. Besides, one of the assumptions of Cournot’s duopoly model is that firms supply a homogeneous product. 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 ). Competitionand Oligopoly: ACaseof Grocery Retailing Kevin A. Lawler Chih-Cheng Yang In this paper we develop a model of Bertrand price competition with uncertainty as to the number of bidders. Simple model of threat: Limit pricing Incumbent E ntrant Don t fight Fight Stay Out (0,-F) (P (C),P (C)-F) (P(M), 0) Enter EC 105. Single period. Bertrand’s model leads to a stable equilibrium, defined by the point of intersection of the two reaction curves (figure 9.13). Constant Returns to Scale: Unit cost of production = c (for both firms). COOPERATIVE BEHAVIOR: Cartel Cartel: A collusive arrangement made openly and formally 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. Patrick Bajari Econ 4631 Oligopoly Models 29 / 55. Considering this, Bertrand proposed an alternative to Cournot.Considering Bertrand’s model from a game theory perspective, it can be analysed as a … Two identical firms: 1,2. • Impure oligopoly – have a differentiated product. OLIGOPOLY. In some cases, competition in terms of price changes seems more logical than quantity competition, especially in the short run. Pure because the only source of market power is lack of competition. Identical product. Industrial Organization ( Matt Shum HSS, California Institute of Technology)Lecture 5: Collusion and Cartels in Oligopoly 4 / 21 Impure because have both lack of An example of a pure oligopoly would be the steel industry, which has only a few producers but who produce exactly the same product. – Duopoly - two firms – Triopoly - three firms § The products firms offer can be either differentiated or homogeneous. 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. • This is the NE of the Bertrand model –Firms make no economic profits. The auction models predict retail price dispersion as an observable feature of price discrimination. The Symmetric Bertrand Model in a Homogenous Good Market. Oligopoly Theory Cournot Cournot wrote in 1838 - well before John Nash! 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. The Simplest Model of Price Competition in a Duopoly: The Bertrand Model. … Bertrand Model of Price Competition • A symmetric argument applies to the construction of the best response function of firm . Oligopoly Environment § Relatively few firms, usually less than 10. 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