Oligopoly (28)

What is an oligopoly

Industry consisting of a few firms

What factors affect competitors

Each firm's price and output levels

What is a duopoly

Two firms that supply the same product

What is cournot competition

Given one firm’s output, the other firm supplies a given level of output

Do two firms produce less than monopolies

No, they have incentives to produce more, but not too much

What is the formula for price, based on duopoly

P(y1 + y2)

Do firms have a say over each other’s output levels?

NO

How do we know if we are in cournot equilibrium?

Neither firm can increase profits by changing output

What is a profit incentive for duopolies

Collusion

What is collusion

Lowering output levels jointly so price skyrockets

What forms if firms collude?

A cartel

When will firms not choose to collude

If profits are lower than that of their cournot equilibrium; need to be at least as large as that

Is P>MC more prevalent in monopoly or duopoly

A duopoly, and even more so if they collude

Is a cartel stable?

No, firms have incentives to cheat and produce more output for larger profits

What is the name for price competition

Bertrand competition

How does a firm set its price

It forecasts the price of the other firms

What is the goal of Bertrand equilibrium

A pair of prices that allow both firms to maximize profits

In bertrand, do firms choose output too

NO, just price

What are bertrand games

All firms marginal production cost is constant and firms set their prices simultaneously, but firms keep cutting their prices to increase consumers until both firms have a price that is equal to their marginal cost

At what P / MC will firms NOT set their price

When P < MC

What would firms do if P < MC

Firms won’t operate in the market

What are Stackelberg games

Sequential game, firm 1 is leader firm 2 is follower, and output is a continual strategic response of other firms output levels.

Are decisions simultaneous in Stackelberg games?

NO