Title: Which of the Cournot and Bertrand models of Oligopoly more realistically reflect firm behaviour?
|Date:||April 26, 2014|
|Length:||8 / 2357|
|No of views:||0|
|Essay rating:||good 0, average 0, bad 0 (total score: 0)|
Each firm can either set its price or output (not other variables such as advertising)
These assumptions form the basis of both the Cournot and Bertrand oligopoly models. How each firm reacts to the other can be analysed using non corporative game theory which is based on rational, decision making individuals who may not be able to fully predict outcomes from decisions made...
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The Bertrand and Cournot Oligopolistic games have three common elements (Carlton & Perloff, 2005),
1. There are two or more firms (players)
2. Each firm attempts to maximise its profits (payoff)
3. each firm is aware that other firms’ actions can affect its profits
Game theory is used to explain how firms react to each others actions and how they come to a Nash equilibrium which is where if holding the strategies of all other firms constant, no firm can obtain a higher payoff by changing their strategy...
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