lect6n - Oligopoly Competition In the previous chapter we...

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Oligopoly Competition In the previous chapter we considered the the extremes of market structures. Here we will consider more empirically relevant structures, where there are a few firms but not a very large number. This structure will be referred to as an oligopoly. One feature that the two extremes we considered previously is that each firm did not have to worry about its rivals’ reaction. In contrast a characteristic of oligopolies is the strategic interdependence between competitors.
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Oligopoly Competition By that I mean an action by Firm 1 is likely to influence the other’s profits and vice versa. Consequently it’s decision process should take into account what it expects it’s rival to do. In the Bertrand model, price will be the strategy that firms decide on. The demand received by each firm will depend on the price it sets. Moreover, demand will also depend on prices set by rival firms. Therefore it has to make some conjecture on what price its rival sets.
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Bertrand Competition In the Bertrand model of duopolies, there are two firms which set their prices of a homogeneous product. It is assumed that firms simultaneously their prices.
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