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Stefan

The document discusses three models of oligopoly: Cournot competition, Bertrand competition, and Stackelberg competition. It then compares the Stackelberg model to other oligopoly models and perfect competition. It finds that the Stackelberg output is greater than Cournot but less than Bertrand, and the Stackelberg price is lower than Cournot but higher than Bertrand. Finally, it discusses cartels, noting they are illegal and aim to restrict output, but firms may cheat to maximize their own profits over the cartel.

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Graf Stefan von Küllingen
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26 views2 pages

Stefan

The document discusses three models of oligopoly: Cournot competition, Bertrand competition, and Stackelberg competition. It then compares the Stackelberg model to other oligopoly models and perfect competition. It finds that the Stackelberg output is greater than Cournot but less than Bertrand, and the Stackelberg price is lower than Cournot but higher than Bertrand. Finally, it discusses cartels, noting they are illegal and aim to restrict output, but firms may cheat to maximize their own profits over the cartel.

Uploaded by

Graf Stefan von Küllingen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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a) All of the three types are models of oligopoly.

Cournot competition: More than one firm on the market, all of them
produce homogenous products. The firms are trying to maximizing
their profit . Cost functions of the firms are similar (homogenous
prodcuts)
Demand equals total quantity (Quantity is is given by competitors)
produced by all firms (->they behave like a monopolist)
Price varies, quantity is fixed.
Bertrand
Price is fixed (given by competitors), produced quantity varies.
Competitors act in a strategic way-> End price = Nash
equilibrium=marginal cost of firms
Stackelberg:
First mover advantage: First firm sets the price (market leader), other
firm has to follow
price leader faces a residual demand curve that is the horizontal
difference between the market demand curve and the followers supply
curve.

In comparison with other oligopoly models,

The aggregate Stackelberg output is greater than the aggregate Cournot output, but less than
the aggregate Bertrand output.

The Stackelberg price is lower than the Cournot price, but greater than the Bertrand price.

The Stackelberg consumer surplus is greater than the Cournot consumer surplus, but lower
than the Bertrand consumer surplus.

The aggregate Stackelberg output is greater than pure monopoly or cartel, but less than the
perfectly competitive output.

The Stackelberg price is lower than the pure monopoly or cartel price, but greater than the
perfectly competitive price.

b) A cartel is made openly and formally and is officially illegal in Europe


and USA.
A cartel tries to restrict the output of member firms to maximize proft.
Marginal cost function of firms equals markets marginal revenue
function
On the other hand , firms tend to deviate or to cheat with the output to
maximize their own profit.

c) If the firms collude, it is always bad for the whole market. Reasons for a
collusion could be divide a market, set prices, limit production or limit opportunities.
d)

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