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If the firms are colluding in the oligopoly, they can set the price at a high profit-maximising level. Perfect and imperfect knowledge: Oligopolies have perfect knowledge of their own cost and demand functions, but their inter-firm information may be incomplete. If firms in an oligopoly collude, information between firms then may become perfect.
In microeconomics, the Bertrand–Edgeworth model of price-setting oligopoly looks at what happens when there is a homogeneous product (i.e. consumers want to buy from the cheapest seller) where there is a limit to the output of firms which are willing and able to sell at a particular price. This differs from the Bertrand competition model ...
All firms know , the total number of firms in the market, and take the output of the others as given. The market price is set at a level such that demand equals the total quantity produced by all firms. Each firm takes the quantity set by its competitors as a given, evaluates its residual demand, and then behaves as a monopoly.
Each firm must then weigh the short term gain of $30 from 'cheating' against the long term loss of $35 in all future periods that comes as part of its punishment. Provided that firms care enough about the future, collusion is an equilibrium of this repeated game. To be more precise, suppose that firms have a discount factor. The discounted ...
Bertrand competition is a model of competition used in economics, named after Joseph Louis François Bertrand (1822–1900). It describes interactions among firms (sellers) that set prices and their customers (buyers) that choose quantities at the prices set.
A perfectly competitive firm charges P = MC, L = 0; such a firm has no market power. An oligopolist or monopolist charges P > MC, so its index is L > 0, but the extent of its markup depends on the elasticity (the price-sensitivity) of demand and strategic interaction with competing firms. The index rises to 1 if the firm has MC = 0.
"Kinked" demand curves and traditional demand curves are similar in that they are both downward-sloping. They are distinguished by a hypothesized concave bend with a discontinuity at the bend - the "kink."
In these alternative models of oligopoly, a small number of firms earn positive profits by charging prices above cost. Suppose two firms, A and B, sell a homogeneous commodity, each with the same cost of production and distribution, so that customers choose the product solely on the basis of price. It follows that demand is infinitely price ...