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For a duopoly involving homogeneous products, explain and contrast a Cournot, Stackelberg and Bertrand equilibrium.
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For a duopoly involving homogeneous products, explain and contrast a Cournot, Stackelberg and Bertrand equilibrium. 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 whether firms treat quantity or price as the key strategic variable. When it comes to quantity setting there are two major models put forward. The first, developed by Cournot in 1838 is based on firms setting quantities simultaneously where each firm is setting the output that maximises its profit given the output of its rival. In 1934 Stackelberg argued that one...
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