Lecture3_Oligopoly

# Lecture3_Oligopoly - INTRO QUANTITY PRICE COMMENTS I...

This preview shows pages 1–7. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: INTRO QUANTITY PRICE COMMENTS I NDUSTRIAL ORGANISATION (2011) T OPIC 3: O LIGOPOLY Nicolas de Roos 1 1 School of Economics University of Sydney INDUSTRIAL ORGANISATION (2011) TOPIC 3: OLIGOPOLY INTRO QUANTITY PRICE COMMENTS O UTLINE INTRODUCTION QUANTITY COMPETITION Cournot model Stackelberg model PRICE COMPETITION Bertrand model FINAL COMMENTS INDUSTRIAL ORGANISATION (2011) TOPIC 3: OLIGOPOLY INTRO QUANTITY PRICE COMMENTS I NTRODUCTION Common assumptions for oligopoly • consumers are price takers • homogeneous products (we will relax this later) • entry barriers • price or quantity are strategic variables (relaxed later) INDUSTRIAL ORGANISATION (2011) TOPIC 3: OLIGOPOLY INTRO QUANTITY PRICE COMMENTS O UTLINE INTRODUCTION QUANTITY COMPETITION Cournot model Stackelberg model PRICE COMPETITION Bertrand model FINAL COMMENTS INDUSTRIAL ORGANISATION (2011) TOPIC 3: OLIGOPOLY INTRO QUANTITY PRICE COMMENTS T HE C OURNOT MODEL Assumptions • firms compete by choosing quantity simultaneously • firms interact in a single period • homogeneous product • no entry We solve for a Nash equilibrium to a simultaneous game. • each firm chooses optimal output given their rivals’ output INDUSTRIAL ORGANISATION (2011) TOPIC 3: OLIGOPOLY INTRO QUANTITY PRICE COMMENTS T HE C OURNOT MODEL In a Nash equilibrium (NE) • each firm maximises profits given the strategies (outputs) of their rivals Steps to solve for the Nash equilibrium 1. work out the objective function (profits) for each firm π i ( q 1 , q 2 ,... ) = q i P ( q 1 + q 2 + ... )- C ( q i ) 2. derive reaction functions for each firm • profit maximisation given the output of rivals leads to...
View Full Document

## This note was uploaded on 10/28/2011 for the course ECOS 3005 taught by Professor Douglas during the Three '10 term at University of Sydney.

### Page1 / 17

Lecture3_Oligopoly - INTRO QUANTITY PRICE COMMENTS I...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online