Which with the Cournot and Bertrand Models of Oligopoly Even more Realistically Echo Firm Behavior?

 Which of the Cournot and Bertrand Models of Oligopoly Even more Realistically Reveal Firm Actions? Essay

There is only 1 model pertaining to monopoly and one intended for perfect competition but in contrast to these oligopolies have several models to try and explain the way they react, examples of these are the kinked require curve, Bertrand and Cournot models. A non competitive oligopoly is usually ‘a marketplace where a small number of firms work independently tend to be aware of every single others actions' (Oligopoly, Online). In best competition not one firm can affect price or perhaps quantity it is because intense competition and the relative small size of the companies, on the other hand there is also a monopoly market where there is little or no rivalry and companies have control over the market. Oligopoly is a express in-between excellent competition and monopoly where firm can change its cost or amount but has to take into account competitors reactions to changes to determine its own ideal policy (Carlton & Perloff, 2005). It can be argued that oligopolies are definitely more realistic inside the ‘real world' as markets are often in-between the two extremes of ideal competition and monopoly. A good example to show just how oligopolies behave is the coca-cola market in the usa, the Pepsi co is usually planning on increasing its value by five percent the question is how will the amount two manufacturer Pepsi-cola react? Will it raise its value like Skol co or stay fast to try and gain market share (Cabral, 2000). Oligopoly models make an effort to explain these types of reactions/decisions in addition to this dissertation I will glance at the Bertrand and Cournot types.

The Bertrand and Cournot models are both for examining non-competitive oligopolies and for each of these models five strong assumptions are made (Oligopoly, online),

1 . Consumers are price takers

2 . Most firms develop homogenous items

3. There is no entry towards the industry

4. Firms each have market power (so can collection price above MC) 5. Each organization can either established its price or output (not different variables just like advertising)

These kinds of assumptions form the basis of both the Cournot and Bertrand oligopoly models. How each company reacts to the other may be analysed employing non corporative game theory which is based upon rational, decision making individuals who may not be able to completely predict final results from decisions made. The Bertrand and Cournot Oligopolistic games have three common elements (Carlton & Perloff, 2005),

1 . There are two or more firms (players)

2 . Every single firm efforts to maximise its profits (payoff)

3. each firm is aware that different firms' actions can affect their profits

Video game theory is used to explain how firms respond to each others actions and just how they come to a Nash sense of balance which is exactly where if possessing the strategies of all other organizations constant, not any firm can obtain a higher payoff by changing their approach. So in Nash balance no company wants to alter their strategy. The Cournot and Bertrand oligopoly types can be viewed using game theory even though they were created long before that existed. These types of models happen to be single period, which means they are single period or static games where firms compete once inside the period as well as the market then simply clears one particular and for most. Because there is zero repetition the chance for companies to learn about each other with time is not existent and is also relevant intended for markets that last a short period of time (oligopoly, online).

The Cournot version was developed by the French mathematician Augustin Cournot in 1838, the basic thought behind his model of not competitive oligopoly assumes that every firm functions independently and attempts to maximise its revenue by choosing its output (quantity to produce). In the Cournot duopoly version there are several basic assumptions firstly that there are 2 firms in the market, entry into the market is blockaded, the products happen to be homogenous and both organizations have constant marginal costs which means that cost and profit both be based upon rival businesses actions (Carlton & Perloff, 2005). The model operates by working out the residual demand, which is the demand intended for firm A's product presented the...

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