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For a duopoly involving homogeneous products, explain and contrast a Cournot, Stackelberg and Bertrand equilibrium.

Date Submitted: 09/09/2006 22:56:48
Category: / Social Sciences / Economics
Length: 8 pages (2138 words)
Views: 198220

The critical problem faced by a firm in an oligopoly is that its decisions affect the prices and quantities of its rivals. The oligopoly problem arises because, where there are only a few suppliers to the market; the demand for the product of one firm depends significantly on the price and output. A non-cooperative duopoly is an industry consisting of two firms in which firms take their decisions independently and can be classified according to …

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…' However firm 1 anticipating firm 2's response would be obliged to set a zero price. Thus the equilibrium would involve zero prices. As the firm knows that it will be undercut when it sets a +ve price and therefore sets price=0. With differentiated products, the equilibrium of price leadership is consistent with +ve profits. Since there is a 2nd mover advantage, why would one firm elect to set price before the other firm does so.

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