12
votes
Accepted
Why would a company sabotage its product's ability to be used for a particular purpose?
This topic is explained by market segmentation with price discrimination in monopolies.
This is widely used in, for example, price discounts for senior/retired people.
By targetting different market ...
9
votes
Accepted
Nash equilibrium of a Bertrand game with different marginal costs
Yes, there is no equilibrium in pure strategies. For any price charged by firm 2 above $c_1$, firm one could only best respond by charging the largest price that is strictly smaller. which is ...
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8
votes
Why would a company sabotage its product's ability to be used for a particular purpose?
Disclaimer: I am not at all familiar with the hardware industry; in fact I believe this answer makes most of my points but is better tailored for the specific industry in question.
Market share
A ...
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6
votes
How do small firms survive in an oligopoly?
When there are few big firms and many smaller firms with a small market share, economists speak about a market with a competitive fringe. The smaller firms are price takers, have higher marginal and ...
- 3,481
5
votes
Accepted
Question on oligopoly.
You have solved the Cournot part correctly, but then you've gone completely off the road, by mistaking economics for mathematics. This usually happens.
First of all, you shouldn't assume just any ...
- 300
5
votes
Accepted
Is there any research, theory, or anything which shows how much of a market has to be in power of a few companies to be a force against free market?
The quote in the question isn't really rigorous about what a free market is, but it talks about monopolies and artificial scarcities, so I am interpreting the efficient outcome with price equal to ...
- 17k
5
votes
Accepted
Cournot Duopoly firms guaranteed to produce the same amount
Even if firms have identical technologies and identical reaction functions, the Cournot equilibrium can be asymmetric, as shown there:
Amir, Rabah & Garcia, Filomena & Knauff, Malgorzata, 2010....
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5
votes
Accepted
Any classic micro models in which the (equilibrium) number of producers of a product increases monotonically with demand?
In a symmetric $n$-firm Cournot competition with linear inverse demand $p=a-bQ$ and constant marginal cost $c$, each firm's equilibrium profit is $$\pi_i = \frac{1}{(n+1)^2}\frac{(a-c)^2}{b}$$
...
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4
votes
Accepted
Underlying assumptions of Bertrand competition
A1. This assumption is not "intuitively deducible" and does not hold in versions of the model in which (a continuum of) consumers are explicit players. Indeed, if you allow different firms ...
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3
votes
Accepted
Uniform price vs. pay-as-bid auctions in energy markets
I believe "Auctions of Homogeneous Goods: A Case for Pay-as-Bid" by Pycia and Woodward answers your questions theoretically. This is quite recent and their results are striking. They also ...
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3
votes
Profit maximization of an oligopolistic firm
This is Sweezy's (1939) kinked demand curve model. In equilibrium, quantity is at F and price at A. I guess the answer B results from a misconception. The profit maximization equation MR = MC ...
- 7,119
3
votes
Cournot oligopoly - first-order condition
The gist/shortened and generalized version of the above answer:
In the context where $Q = \sum_i q_i$ the equation
$$ \frac{\partial \pi_i}{\partial q_i} + \frac{\partial \pi_i}{\partial Q} = \frac{\...
- 29.6k
3
votes
Perfect Bayesian Equilibrium in a two stage game with incomplete information
In your example, you would still use backward induction to solve for the Perfect Bayesian Equilibrium (assuming the distribution of private costs has full support). In fact, the second stage of your ...
- 15.8k
3
votes
How exactly is a Bertrand equilibrium defined?
What do we mean by "makes the best decision based on what the other player has decided to do"
Your question touches a little bit on the philosophical foundations for Nash Equilibrium. As you know, a ...
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3
votes
Accepted
Studying Oligopolies
The basics are of course Cournot, Stackelberg and Bertrand competition, which you can find in any textbook.
If you are referring to needing references for research, then the paper you absolutely must ...
- 6,246
3
votes
Oligopoly kinked demand graph doesn't make a sense to me
As the graph notes, the red segment of the demand curve is relatively inelastic, meaning that compared to the blue segment, the red segment of demand is relatively insensitive to price changes. This ...
- 15.8k
3
votes
Firm Concentration and Low Inflation
Interesting!
A possible way to resolve this contradiction is by taking cost reducing technologies into consideration.
Perhaps (example with made up numbers follows) in 1960 a gallon of milk cost \$1 ...
- 29.6k
3
votes
Accepted
Doesn't it make sense in terms of economic security for tech companies to support unions?
To this end, wouldn't it make sense for corporations like Amazon and Starbucks, with massive profits and incredibly wealth CEO's, to at least appear to "share the wealth" and go along with, ...
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2
votes
Nash equilibrium of a Bertrand game with different marginal costs
I think standard in Bertrand competition with different constant marginal cost is another assumption in case of equal prices. Instead of sharing demand equally, you could assume that in case of equal ...
- 5,291
2
votes
Accepted
How does market work when there are few buyers and few sellers at the same market?
Hendricks and McAfee (2007) offer a theory of bilateral oligopoly. They consider the example of the wholesale gasoline market on the west coast of the United States, which is composed of a small ...
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2
votes
Accepted
3 Firm Stackelberg's Oligopoly Game
I assume that you found Firm 3's best response to be
\begin{equation}
q_3^*(q_1,q_2)=\frac12(16-q_1-q_2).
\end{equation}
The next step would be to solve for Firm 2's best response. Since Firm 2 ...
- 15.8k
2
votes
Finding the demand function
I don't have a question to "correctly interpret" , but I think the way you are calculating the demand function is correct. The demand curve in an oligopoly can be kinked (bowed out), as this one is. I ...
- 1,230
2
votes
Stackelberg with 3 firms
Start with the second stage, this is just Cournot competition between firm 2 and firm 3. You can solve this for the Nash equilibrium by setting the first order condition for firm 2 and firm 3 and ...
- 805
2
votes
Studying Oligopolies
I would recommend taking a look at Jean Tirole's "The Theory of Industrial Organization".
This textbook provides a clean exposition of the models of Bertrand, Cournot, Stackelberg, Hotelling, and ...
- 17k
2
votes
Accepted
Realistic examples of quantity competition
You can't differentiate empirically between Bertrand and Cournot oligopoly/duopoly just by looking whether quantity or price varies.
In both Cournot and Bertrand model price can change. The difference ...
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2
votes
Accepted
Math behind the first mover advantage in Stackelberg model
In a nutshell: in Cournot (in any simultaneous game), each firm chooses his best response given the other players' RESPONSE, whereas in Stackelberg one firm is choosing his best response given the ...
2
votes
How do the assumptions $p'+q_ip''<0$ and $p'-c''<0$ ensure the stability of the Nash equilibrium among private firms in basic mixed oligopoly model?
The stability conditions are from Hahn (1962). They ensure that, under a specific adjustment process, the firms' outputs will converge to the Cournot-Nash equilibrium. The assumed adjustment process (...
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2
votes
Stackelberg model with 3 symmetric firms
Suppose $q_3(q_1,q_2)$ denotes the reaction function of firm 3, and $q_2(q_1)$ denotes the reaction function of firm 2. To determine firm 1's choice, maximise the profit of firm 1 subject to the ...
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1
vote
Accepted
Will there always be excess profit in the Cournot model equilibrium/monopoly
If the AC curve is assumed convex and demand is assumed linear, as in the figure, then an AC curve tangent to the demand line means that AC > P at all quantities but one (where AC = P). Thus the ...
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