Consumers always purchase from the cheapest seller. COOPERATIVE BEHAVIOR: Cartel Cartel: A collusive arrangement made openly and formally Homogeneity of product. • Pure oligopoly – have a homogenous product. Industrial Organization ( Matt Shum HSS, California Institute of Technology)Lecture 5: Collusion and Cartels in Oligopoly 4 / 21 Oligopoly Environment § Relatively few firms, usually less than 10. § Many different strategic variables are modeled: – No single oligopoly model. Pure because the only source of market power is lack of competition. Bertrand’s model leads to a stable equilibrium, defined by the point of intersection of the two reaction curves (figure 9.13). • Impure oligopoly – have a differentiated product. 1 Oligopoly: Bertrand Model Bertrand model: There are two –rms and no entry is possible. Impure because have both lack of If the two selllers charge the same price then half of the consumers pur-chase from … 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. … Constant Returns to Scale: Unit cost of production = c (for both firms). 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. In some cases, competition in terms of price changes seems more logical than quantity competition, especially in the short run. If the total output is Q, then the price is P(Q). Patrick Bajari Econ 4631 Oligopoly Models 29 / 55. OLIGOPOLY. • This is the NE of the Bertrand model –Firms make no economic profits. Point e denotes a stable equilibrium, since any departure from it sets in motion forces which will lead back to point e at which the price charged by A … The Symmetric Bertrand Model in a Homogenous Good Market. – Duopoly - two firms – Triopoly - three firms § The products firms offer can be either differentiated or homogeneous. The auction models predict retail price dispersion as an observable feature of price discrimination. 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. Bertrand Model of Price Competition • A symmetric argument applies to the construction of the best response function of firm . Two identical firms: 1,2. Besides, one of the assumptions of Cournot’s duopoly model is that firms supply a homogeneous product. The Simplest Model of Price Competition in a Duopoly: The Bertrand Model. § Firms’ decisions impact one another. 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. Understanding Oligopoly Price competition and the Bertrand model French economist Joseph Louis Bertrand (1922-1900) The logic behind price competition is that when firms produce perfect substitutes and have sufficient capacity to satisfy demand when price is equal to marginal cost, then each firm will be compelled to engage in competition by Oligopoly Theory Cournot Cournot wrote in 1838 - well before John Nash! 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 ). Identical product. 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