Which of the Cournot and Bertrand Models of Oligopoly More Realistically Reflect Firm Behaviour?

While companies that make up an oligopoly are competitors, they are acutely aware of the processes, systems, and actions of the other companies; therefore, the decisions and actions of one company usually influence and are influenced by the actions and decisions of other companies. These decisions and actions tend to restrict and limit the goods and services that are offered and can also lead to higher prices for

By definition a Monopoly is exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices (Monopoly 2012). Individuals are often time fearful of a company or industry becoming a monopoly because it would control too much of a market share, and do whatever wants; this includes raising prices, to using excess capital to branch into even more areas (Rise of monopolies 1996). The market structure of a monopoly is characterized by; a single seller; a unique product; and impossible entry into the market (Tucker 2011). A monopoly can be a difficult thing to accomplish being that a single seller faces an entire industry demand curve due to the fact it makes up the industry as a

Mutual interdependence: a very important feature of oligopoly. It means that firms are significantly affected by each other’s price and output decisions. In such market, a small numbers of firms compete with each other; the sales of one firm depend upon that firm’s price and the price charged by the other firms (rivals). If a firm lower the price, its own sales will increase but the sales of the other firm in the industry decrease. In such situation, the other firms will most likely lower their price too then the price cut of the other firms will lower the profits of the first firm. So before deciding to cut its prices, the first firm tries to predict how other firms will react and attempt to calculate the effects of their reactions on its own profits. (Tucker I.,2012) In other words, firms in an oligopoly environment have to take into consideration the actions and reactions of their rivals while determining the price and output policies. Failure to properly predict its rivals’ output may mean that the firm ends up misjudging the potential demand for its products.( Ashby & Diacon,1998) This may have

Cartel - firms ,especially dominant players, gather together to set up a price according to the profit maximisation in the whole market. In this case, firms act like a monopoly. The price of products of each firms is fixed, thus reduction of price competition will be achieved. Instead of pricing strategy, firms will compete each other over non-price competition, for example, advertising. Like monopoly, customers’ interest might be sacrificed because price is constructed according to the market’s profit maximisation point, whole industry can gain abnormal profit, which means customers pay more than they actually need to. According to the figure 1, price of products under cartel is set up at P because of profit maximisation E (MC=MR), and abnormal profit is PP2FG. However, cartel is illegal in many countries, including UK.

E., & Gould, J. P., 1966). Furthermore, the members are price takers and do not have the power to influence price changes. We now understand that perfectly competitive markets are very rare and that in reality our product exists in a different type of market. The four types of markets are: Monopoly, Oligopoly, Monopolistic competition, and perfect competition. Our company has gained enough power in the market to influence price and allow it to choose its own optimal price. This means that establishing an equilibrium where QD = QS does not necessarily apply. Perhaps our company has developed an innovation that makes the quality of our microwave meal much better than our competitors or we have developed a process than drastically lowers the cost of processing the ingredients for our product. Regardless of the reason, our company now has a competitive advantage and we must take advantage of it in order to become dominant in our industry.

Pure monopoly exists when a single firm is the sole producer of a product for which there are no close substitutes. (McGraw-Hill) A pure monopoly is a firm that satisfies the following conditions, it is the only supplier in the market, there is no close substitute to the output good, and there is no threat of competition. In pure monopoly there are single sellers, no close substitutes, price maker and blocked entry.

The first concept I am going to discuss is an oligopoly. There are several characteristics that make up an oligopoly. One characteristic is that there are many firms in the industry but only a few firms that make up the majority of the market share. In the United States soda market, three firms (Coca-Cola, Pepsi, and Dr. Pepper Snapple Group) make up almost ninety percent of the market (Schiller, 246). Another characteristic is that in an oligopoly, the oligopolists have substantial influence over price (though one oligopolist is usually the price leader). This market power is determined by the number of producers in the industry, the

Oligopoly is defined as a market structure in which there are a few major firms dominating the market in an industry. One of the defining factors is that each firm explicitly feeds off of the competitors' moves and their potential responses in regard to setting prices, launching new products, etc. Under this model there is a level of implied cooperation. The firms understand that it is in their own best interests to maintain a stable price. If one of the firms subsequently lowers their prices, their competitors will do the same and knock out any advantage the original firm was hoping to gain with lower prices. However, if they raise their prices, the competitors may not do the same and can keep their prices fixed which will allow them to gain more market share.

Since there are so many producers in a perfect competition market, consumers are able to be price makers and there is ample opportunity for firms to compete for their business. Consider the below graph depicting the natural efficient price equilibrium and the firm’s optimal output in the short run. The market may demand a quantity of a product where the usual efficient market would consume at the marginal revenue= marginal cost (MR=MC)

A market is defined as an institution that brings together buyers (demanders) and sellers (suppliers) of a particular good or service. A Market structure is the relationship among the buyers and sellers of a market and how prices are determined through outside influences. There are four different types of market structures. Two on opposite extremes, and two comfortably in the middle. On one end is perfect competition, which acts as a starting point in price and output determination. Pure competition is when a large number of firms sell a standardized product, entry and exit is very easy, and an individual firm cannot control the price. On the other extreme end is Pure monopoly. A monopoly is characterized by an absence of competition, which will often allow one seller to control the market. A Pure monopoly is essentially the same thing, but also includes near impossible entry and no substitute goods. Two more common market structures are monopolistic competition and oligopoly. Monopolistic competition has a large number of sellers producing different products, while an oligopoly has only a few number of sellers producing similar products. All in all pure competition, pure monopoly, monopolistic competition, and oligopoly are all unique market structures with differing characteristics, but have one main goal, profit maximization.

In a monopoly, a single company owns the market of a certain product. Some characteristics of a monopoly are that it only has one seller, is a

A monopoly situation is when a single company or group owns all or almost all of the market for a certain product or service. When this happens, competition is eliminated and often companies skyrocket their prices, being though they are he only one around with those products or services. Antimonopoly regulation protects free market from being dominated from a single entity. Monopoly happens when a single company owns 25% or more of a single market. An example of a monopoly is a person looking to purchase a car, and there is only one maker of a car, that carmaker is considered to be monopoly. Ways that monopolies are formed is through price fixing, price discrimination, group boycott and tying contract. Monopoly violates the federal antitrust

Oligopoly refers to the market situation that would lie between pure competition and monopoly. It is characterized by small group of firms that control the market for a certain product or service. This gives these businesses huge influence over price and other aspects of the market.

In oligopoly market, each firm has substantial market power with high degree of interdependence. The key for success in a oligopoly market is to gain more market share than the competitors. Increasing the price can lead to loss of market share to the competitors, so in the oligopoly market, if a firm decreases the price, the other firms will always follow, but if a firm increase the price, the other firms will not follow. The demand curve is kinked.

Has the economy ever thought about direct impact from monopoly and oligopoly industries? The structure of a monopoly based industry exemplifies one seller in the entire market. On the other hand, the concept of an oligopoly industry illustrates few sellers that have the potential of making a direct impact in one single industry idea. The economy has depended on the market share of a monopoly and an oligopoly trade. However, a monopoly industry differs from an oligopoly industry due to a monopoly competitor dominates a majority of the market share of many industries and an oligopoly competitor contains few sellers who dominate a market share based on one single industry idea.