What is the difference between Cournot and Bertrand?
In the Cournot model, firms control their production level, which influences the market price, while in the Bertrand model, firms choose the price of a unit of product to affect the market demand.
What is a collusive equilibrium?
Collusion is a non-competitive, secret, and sometimes illegal agreement between rivals which attempts to disrupt the market’s equilibrium. The act of collusion involves people or companies which would typically compete against one another, but who conspire to work together to gain an unfair market advantage.
How do you find the Cournot equilibrium?
Once you know the optimal demand and optimal revenues for the market as a whole, you can now calculate the point of equilibrium for either company’s production, disregarding any collusion between the two using this formula: π = P(Q) q − C(q).
What is Bertrand?
Definition: In a Bertrand model of oligopoly, firms independently choose prices (not quantities) in order to maximize profits. This is accomplished by assuming that rivals’ prices are taken as given. The resulting equilibrium is a Nash equilibrium in prices, referred to as a Bertrand (Nash) equilibrium.
Is Cournot equilibrium Pareto efficient?
Comparison with competitive equilibrium We conclude that the firms’ outputs and the price are different in a Nash equilibrium than they are in a competitive equilibrium. An implication is that, as for a monopoly, the Nash equilibrium outcome in a Cournot duopoly is not Pareto efficient.
What is the best response function?
In game theory, the best response is the strategy (or strategies) which produces the most favorable outcome for a player, taking other players’ strategies as given (Fudenberg & Tirole 1991, p. 29; Gibbons 1992, pp. 33–49).
What is the disutility of effort?
The necessary and sufficient conditions are being given by a constant disutility of effort, which implies a constant marginal rate of substitution between income and leisure, over the relevant range of hours worked per man, in the traditional sector.
What is the difference between Nash equilibrium and dominant strategy?
According to game theory, the dominant strategy is the optimal move for an individual regardless of how other players act. A Nash equilibrium describes the optimal state of the game where both players make optimal moves but now consider the moves of their opponent.
What is Firm A’s dominant strategy?
Refer to Table 14.3, Firm A’s dominant strategy is to advertise. The Nash equilibrium in the game.