ECON 2300 Lecture Notes - Bertrand Competition, Oligopoly
Document Summary
Econ 2300 summer 2011 mark melatos. Firms earn lr profits > 0 barriers to entry. 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. D curve known: 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: firm 1 (the leader") chooses output, q1, firm 2 (the follower") observes q1, and chooses q2 optimally in response, the leader, in choosing its action, must take into account the follower"s response. Solve the game backwards: i. e. solve for the follower"s problem first, then solve the leader"s problem. Simultaneous price competition homogenous products bertrand model: assumptions. Lowest price firm captures all the market.
