Game theory: cournot, bertrand + stackelberg oligopoly

  • Created by: charlie
  • Created on: 09-05-16 12:47
Oligopoly characteristics and aim
profit depends on price compared to rivals + whether product differentiated/ aim is to maximise profit
1 of 18
Oligopoly: cartel
oligopolistic firms combine and become better off
2 of 18
Oligopoly: Actions (nash equilibrium)
set price/ quantity + holding actions of all firms constant, no firm can obtain higher profit by choosing different strategy
3 of 18
Cournot oligopoly: characteristics
simultaneous/ set quantity levels/ independent/ imperfect information/ quantity one chooses affects others profit as market price depends on total output
4 of 18
Cournot oligopoly: assumptions
market lasts 1 period/ simultaneous firms/ identical/
5 of 18
Oligopoly: Actions (best response)
strategy maximises payoff given the belief about future actions of rival
6 of 18
Stackelberg oligopoly: characteristics
firms make decisions at different times (sequential)/ set quantity levels/ leader (greater power, entered first, reputation, cost adv, greater production) + follower
7 of 18
Stackelberg oligopoly: backward induction
solve COURNOT equation for opposition firm first/ put into profit function for firm A
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Betrand oligopoly: characteristics
simultaneous/ maximise profit subject to prices
9 of 18
Bertrand oligopoly: Nash-bertrand eqm
set of prices such that no firm can obtain high profit by charging a different price, if others continue to charge this price
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Bertrand oligopoly: quantity function equation
11 of 18
Bertrand oligopoly: profit function equation
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Bertrand oligopoly: 4 stages
1) profit function 2) maximise profit=0 (differentiate with respect to own price) 3) find best response function (making price subject of equation) 4) Nash bertrand eqm (best response functions meet)
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Cournot oligopoly: profit equation
14 of 18
Stackelberg oligopoly: profit equation
15 of 18
Cournot + Stackelberg oligopoly: price/ quantity equation
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Cournot oligopoly: 5 stages
1) profit function 2) maximise profit=0 (differentiate with respect to own quantity) 3) make quantity subject of equation 4) consistent conjectures (conjectured quantity=optimal quantity) in eqm. 5) Nash equilibrium (substituting in each equation)
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Stackelberg oligopoly: 5 stages
1) followers reaction function (COURNOT) 2) profit function of leader 3) max profit=0 (differentiate with respect to own quantity) 4) make quantity subject of equation 5) Nash eqm (substituting equations)
18 of 18

Other cards in this set

Card 2


Oligopoly: cartel


oligopolistic firms combine and become better off

Card 3


Oligopoly: Actions (nash equilibrium)


Preview of the front of card 3

Card 4


Cournot oligopoly: characteristics


Preview of the front of card 4

Card 5


Cournot oligopoly: assumptions


Preview of the front of card 5
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