Intermediate Microeconomic Theory I
ECON 2300 – Summer 2011 – Mark Melatos
Topic 9 – Oligopoly – July 19
- Few firms competing.
- Products may be differentiated.
- Firms earn LR profits > 0 barriers to entry.
- Most common form of market structure. Examples include car manufacturing and
aircraft manufacture (Boeing, Airbus).
- Firms may compete in Q (Cournot) or P (Bertrand) e.g. Airlines compete on
price or # seats.
Simultaneous Quantity Competition
- The Cournot Model
2 firms (duopoly)
D curve known
o Firms decide how much to produce at the same time. Each firm takes the
output level of its competitor as fixed and then chooses its own output to
maximise its profit.
- The Stackelberg Model
o Firm 1 (the ‘leader’) chooses output, q1.