M B A 8620 Chapter Notes - Chapter 11: Nash Equilibrium, Monopolistic Competition, Marginal Cost
17 Oct 2016
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The oligopoly model for a particular market depends on: the characteristics of the market, type of actions the firms take. Whether set quantities or prices: whether firms act simultaneously or sequentially, number of periods over which firms compete. Best known oligopoly models: cournot model. In both models the firms act simultaneously and independently. They act before they know how its rivals will act. Therefore, they have to choose its output level or price based on how it expects its rivals to behave. A set of strategies chosen by the oligopolistic firms is a nash equilibrium if, holding the strategies of all other firms constant, no firm can obtain a higher profit by choosing a different strategy. Four assumptions: the market has a small number of firms, and no other firms can enter, the firms set their quantities independently and simultaneously, the firms have identical costs, the firms sell identical products.
