Week 10 - Oligopolys + Duopolies

Question 1

What are the three types of model for duopoly market?
How are they played?

Answer 1

Cournot Model
- Simultaneous choice at the same time

Stacleburg Model
- sequential choice of quantity

Bertrand Model
- simultanious/ sequential price choice

Question 2

What are the three assumptions of the Cournot Model?

Answer 2

1. Firms have the same cost function
2. Firms produce the same product
3. Market lasts one period

Question 3

What is the cournot-Nash equilibrium?

Answer 3

A firms best strategy for quantity choice

Question 4

What are the first steps to solve a duopoly problem?

Answer 4

1. Find the profit function (profit = TR - TC)
2. Find the reaction function
   (profit maximisation, dprofit/dq = 0)
3. Find equilibrium
   -if firms are identical you can substitute q2 straight into firm 1’s profit maximisation function

Question 5

What is the market equilibrium equation for cartels?

Answer 5

Since cartels act like monopolies, they produce at a point where:
MR=MC

Question 6

If acting as a cartel, what is important factors needed by the cartel participants?

Answer 6

1. Ways to detect/punish agreement violators
2. Ways to keep illegal activities secret