Question

Jose manages a firm in an oligopolistic market. There are new firms thinking about entering the market. How will these entrants affect the market price and quantity if the industry is categorized by Bertrand Competition? Cournot Competition? Please provide an explanation. Provide graphs and/or examples to illustrate where this would be helpful.  

Answer 1

Usually entering of new firm in the market leads to rise in output and price falls. But following would be impacts on different markets:

Cournot market:

Cournot market tends to produce which is less than competitive market, if there is rise in number of firm in market, there shall be increase in output and price will fall down. Competition among firms leads to such outcomes.

Bertrand model:

Under the Bertrand model, P = MC or firms tend to operate like perfectly competitive market. Thus, if firm is not in long run equilibrium, entry of new firm will increase supply and price will fall again. But when firms are in long run equilibrium, there will not be further fall in price level.