Lecture3_Oligopoly - INTRO QUANTITY PRICE COMMENTS I...

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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...
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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.

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Lecture3_Oligopoly - INTRO QUANTITY PRICE COMMENTS I...

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