( They are the firm that makes an output decision before all other firms and dominates the market. . C Any threat by the follower claiming that it will not observe even if it can is as uncredible as those above. An oligopoly is a market structure in which a few firms have each such a large market share that any change in output by one firm changes market price and profit of other firms. 1 If Stackelberg was correct. : The values of 2 1 It is one of the three (Cournot, Bertrand; Stackelberg) models that are commonly discussed in introductory microeconomics courses. 2 As argued above, on the equilibrium path play is a best response to a best response. c) A single firm (the leader) selects an output before all other firms choose their outputs. has the cost structure With the addition of time as a dimension, phenomena not found in static games were discovered, such as violation of the principle of optimality by the leader, Simaan and Cruz (1973b). − The follower must have no means of committing to a future non-Stackelberg leader's action and the leader must know this. q 1 If the leader played a Stackelberg action, (it believes) that the follower will play Cournot. ; price is simply a function of total (industry) output, so is Point E gives the maximum profit to firm 2. i I am looking for a real world example of an industry or company that fits each of the oligopoly models (Bertrand, Stackelberg, and Cournot). ( There is also the important assumption of perfect information in the Stackelberg game: the follower must observe the quantity chosen by the leader, otherwise the game reduces to Cournot. {\displaystyle q_{2}} q q − 1 2 The leader’s output has already been produced. Content Filtration 6. Out of these 4 types of oligopolies, which type would be better and most preferable to consumers? ) The Cournot solution is obtained by maximising π1 with respect to q1, assuming q2 to be constant, and with respect to q2, assuming q1 to be constant. The Stackelberg model is a quantity leadership model. There is a basic cost structure involving only marginal cost (there is no fixed cost). In general, the profit of each duopolist is a function of the output levels of both: π1 = f1(q1, q2), π2 = f2(q1, q2) ……………. The follower wants to choose an output level such that MR equals MC: MR2 = p1(q1 + q2) + Δp/Δq2.q2 = MC2 …………… (5). q See Simaan and Cruz (1973a, 1973b). ) 1 If firms make any wrong assumptions about each other’s response then equation (2) will not represent an improvement over the Cournot model. In this model a follower obeys his reaction function q2 = f2 (q1) and adjusts his output level to maximise his profit, given the quantity decision of his rival, who he assumes to be a leader. ) 1 But the output choice of the follower, q2, will depend on the leader’s choice via the reaction function q2 – f2 (q1). The follower actually observes this and in equilibrium picks the expected quantity as a response. how it will respond once it has observed the quantity of the leader. 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