Comm 295 - Class 16 Notes - Comm 295 11.2, 11.3 Cournot and...

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Comm 295 11.2, 11.3 Cournot and Bertrand Oligopoly 11.2 COURNOT OLIGPOLY - Cournot model – most widely used oligopoly models - Four assumptions: 1) Firms set their quantities (Q) independently and simultaneously 2) Firms have identical costs 3) Firms sell identical products 4) There are 2 firms and no other firms can enter market - Choose output level based on how it expects its rivals to behave Nash equilibrium : a set of actions taken by the firms where no firm can obtain a higher profit by choosing a different action - Because firms set quantities, price adjusts as needed until market clears amount purchased by consumers = amount offered for sale by sellers o Each firm’s quantity decision affects profit of the other firm o Increase in one firm’s quantity will drive down market price, reducing revenues received by other firm o Firms’ profits are interdependent Cournot equilibrium, Nash-Cournot equilibrium : a set of quantities chosen by firms such that, holding the quantities of all other
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This note was uploaded on 12/07/2011 for the course COMM 295 taught by Professor Ratna during the Winter '09 term at The University of British Columbia.

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