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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 ...
An oligopoly (from Ancient Greek ὀλίγος (olígos) 'few' and πωλέω (pōléō) 'to sell') is a market in which pricing control lies in the hands of a few sellers. [ 1 ] [ 2 ] As a result of their significant market power, firms in oligopolistic markets can influence prices through manipulating the supply function .
Cournot's discussion of oligopoly draws on two theoretical advances made in earlier pages of his book. Both have passed (with some adjustment) into microeconomic theory, particularly within subfield of Industrial Organization where Cournot's assumptions can be relaxed to study various Market Structures and Industries, for example, the ...
Three types of oligopoly. Due to the hallmark of oligopoly being the presence of strategic interactions among rival firms, the optimal business strategy of an enterprise can be studied through the thought of game theory. Under the logic of game theory, enterprises in oligopoly market have interdependent behavior.
An oligopoly may engage in collusion, either tacit or overt to exercise market power and manipulate prices to control demand and revenue for a collection of firms. A group of firms that explicitly agree to affect market price or output is called a cartel , with the organization of petroleum-exporting countries ( OPEC ) being one of the most ...
When comparing the models, the oligopoly theory suggest that the Bertrand industries are more competitive than Cournot industries. This is because quantities in the Cournot model are considered as strategic substitutes; that is, the increase in quantity level produced by a firm is accommodated by the rival, producing less.
Examples are Cournot oligopoly, and Bertrand oligopoly for differentiated products. Bain's (1956) original concern with market concentration was based on an intuitive relationship between high concentration and collusion which led to Bain's finding that firms in concentrated markets should be earning supra-competitive profits.
An oligopoly is when a small number of firms collude, either explicitly or tacitly, to restrict output and/or fix prices, in order to achieve above normal market returns. [13] Oligopolies can be made up of two or more firms. Oligopoly is a market structure that is highly concentrated.