Question

Explain the equilibrium position for each of the following:

a) Cournot model

b) Stackelberg model

c) Bertrand model - Is this similar or different from the competitive position?

d) Collusion equilibrium - How does it differ from Cournot equilibrium?

Answer 1

a) cournot model . ; stable equilibrium is reached when total output produced is 2/3 of thetotal demand and each producer is producing 1/3rd of the total demand

b)Stackelberg model; if only one firm is sophisticated,it will emerge as the leader, and a stable equilibrium reached, when the naive firm will act as a follower

c); equilibrium is reached when market price is equal tothe average cost of production and the combined equilibrium output of the two duopolists is equal tothe competitive output

the price will remain constand in betrand model and other competitive market position

d) the difference between this cournot equilibrium and the collusive one is that each firm adjust itsoutput independently of the other firms output to maximise its profit, whereas under collusion it adjusts its output in conjunction with an agreed- uponequivalent adjustment of the other firms output.