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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
