Oligopoly

Question 1

Kinked demand curve model

Answer 1

• competitor will not follow price increase
• competitor will follow price decrease
• model gives a discontinuous
• model doesn’t specify what determine the market price Pk

C’est le prix auquel les compétiteurs ne veulent pas monter + haut, ex gaz car consommateur ne suivront pas, vont préfère changer leurs habitudes

Question 2

Cournot model

Answer 2

• 2firms + avec identical MC curve each choose their preferred selling price based upon the price the other firm chose in the previous period
• duopoly: an oligopoly de 2 firms
• L-R équilibre: pour les 2 firms sell the same quantity, dividing market equally a the equilibrium price
• firm assume that competitor’s price will not change
• market price lower than monopoly, higher that competition

Question 3

Stackberg model

Answer 3

• pricing decision are made sequentially
• assume a duopoly
  -one firm THe LEADeR choose its price first
• second firm chooses a price based on the leader’s price
• the leader firm charges a higher price and receives a greater proportion of total profits

Question 4

Équilibre de Nash

Answer 4

Lorsque les choix de toutes les entreprise sont tels qu’aucun autre choix n’améliore la situation d’une autre entreprise

Question 5

Oligopoly profits with collusion

Answer 5

Firms can earn a greater profit if they collude

Game theory: if competitor can’t detected cheating a firm can increase profit if it violates the collusion agreement and increase output

Collusion more successfull with;

Fewer firms, produit homogène, similar cost productures, certain and severe retaliation for cheating, little competition from firms outside the agreement

Question 6

Dominant firm (DF) model

Answer 6

• single firm has significantly large market share cause of its greater scale and lower cost structure
• market price determined by DF, and other competitive firms (cf) take this market price as well
• price decrease by one of the competitive firms which decrease Qc in short tu , will lead to a decrease in price by the DF and CFs will decrease output and/or exit the industry
• long run result of such a price decrease by CF is to decrease market share of CFs and increase the market share of the DF

Question 7

Dominant firm oligopoly

Answer 7

Market price determined by dominant firm (DF)

Price decrease by a CF:
- increase Qcf
- decrease in DF price
- CFs decrease output and/or exit industry