Static Oligopoly Models and Cournot Example

A model of an industry with multiple firms competing, where firms decide how much to produce.

A product that is identical across different firms producing it.

An action by one firm negatively affecting other firms in the industry.

A situation where no firm can improve its profit by changing its output, given the other firms' outputs.

The price of a product in a market.

The total amount a firm produces, can influence market price.

A firm's revenue minus its costs.

The cost of producing one additional unit of output.

In a Cournot model, when all firms produce the same quantity (Q1 = Q2 = ... = Q*N) due to having identical cost structures.

A model of an oligopoly with 'N' identical firms, each choosing their output level simultaneously, and interacting strategically.

In a Cournot model, a firm's output as a function of its competitors' output, representing its best response strategy given the other firms' output.

The sum of all firms' individual output levels in a Cournot model.

A representation of the relationship between the price (p) of a good and the total quantity demanded (Q).

The profit of a specific firm 'i' in a Cournot model, calculated as revenue minus costs.

The cost of producing one additional unit of output for a firm in a Cournot model.

The quantity of output produced by a specific firm 'i' in a Cournot model.

The optimal output level a firm chooses in response to the output of its competitor(s).

A mathematical equation representing a firm's profit, taking into account its own output (Q1) and the competitor's output (Q2).

The additional revenue generated by selling one more unit of output.

The condition for profit maximization, where the cost of producing one more unit equals the revenue gained from selling it.

A graphical representation of a firm's best response output levels for different output levels of its competitor.

The output level where a firm maximizes its profit when it is the sole producer in the market.

The points where the best response curve intersects the axes, representing the firm's optimal output when the competitor produces 0 or no output.

An auction where the winner pays the second-highest bid, not their own bid.

Bidding your true value for an item in a second-price auction.

Bidding lower than your true value in a second-price auction.

A strategy that is no better than another strategy in every situation, and sometimes worse.

Being awarded the item in an auction by bidding the highest.

Bidding your true value for an item.

The amount of money you pay for the item in an auction.

The positive difference between your value and the price you pay.

When a firm lowers its price to capture more customers, but it might backfire if the price difference is too small to attract enough customers to offset the loss in profit.

Firms offering price guarantees like "find it cheaper, we refund the difference" can paradoxically lead to higher prices. Because customers can claim refunds at the higher price firm, the lower price firm is incentivized to raise their price.

In industries with capacity constraints, prices fluctuate in a cyclical pattern. When a firm lowers its price, it captures more customers, but eventually, capacity constraints force it to raise prices again, starting the cycle anew.

A limitation on the number of customers a firm can serve, which can affect pricing strategies.

Firms competing by lowering their prices to attract customers.

Price guarantees, while seeming beneficial to the consumer, can be a strategy for firms to collude and maintain higher prices.

A situation where no firm can improve its profits by changing its price, given the other firm's price.

A model of competition where firms decide how much to produce, assuming they know the output of their competitors. They maximize profits by choosing the best output.

A model where firms compete by setting prices instead of output. Firms assume consumers will always buy from the lowest-priced seller.

A situation where firms compete by lowering prices, potentially leading to lower profits for all. Often happens in Bertrand competition.

A market where many firms sell identical products, and no single firm can influence prices. Profits are driven down to zero in the long run.