# Intermediate Microeconomics

## 10. Oligopoly

An oligopoly is a small group of firms in a market with substantial barriers to entry. Because the number of firms in an oligopoly is small, each firm can influence the market price with their actions. Furthermore, the actions of one firm in an oligopoly affects rival firms. It is possible for firms in an oligopoly to act independently or collectively. When firms in an oligopoly collude, they collectively behave like a monopolist. In the majority of countries, explicit collusion among firms is illegal. Furthermore, private incentives make the cartel arrangements difficult to maintain. The Pencasts for this topic focus on non-cooperative oligopoly. In particular, the Pencasts cover three different models: the Cournot model, the Stackelberg model and the Bertrand model. In the Cournot and Stackelberg models, firms set quantities, and firms set prices in the Bertrand model.

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## Cournot Model: The BasicsThis Screencast provides a general overview of the Cournot model. |

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## Cournot Model: Market DemandThis Pencast describes the demand function that is will be used in subsequent Pencasts. In this example, we assume the following: the products are identical, firms have identical costs, and there are two firms in the market (i.e. a Duopoly). |

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## Cournot Model: Marginal RevenueThis Pencast illustrates how to derive the marginal revenue functions for firms in a duopoly. To derive the marginal revenue function for both firms, we make use of the demand function described in the previous Pencast. |

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## Cournot Model: Best Response FunctionsThis Pencast illustrates how to derive the best response functions for firms in a duopoly. It makes use of the marginal revenue functions derived in the previous Penast. In the application, it assumed that the two firms have identical costs. |

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## Cournot Model: EquilibriumThis Pencast shows how to use the best response functions derived in the previous Pencast to compute the Cournot equilibrium. |

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## Cournot Model: Graph of EquilibriumThis Pencast depicts the equilibrium found in the previous pencast by plotting both firms’ best response functions. The Cournot equilibrium occurs at the point where the firms’ best response functions intersect. |

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## Stackelberg Model: The BasicsThis Screencast provides a general overview of the Stackelberg model. |

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## Stackelberg Model: Deriving the Leader’s Residual Demand FunctionThis Pencast shows to do derive the leader’s residual demand curve after accounting for how the Leader expects the follower to respond (relies on Follower’s Cournot best response function). We use the demand function described in the first Pencast in this series; assume that both firms in the duopoly have identical costs; and assume the products sold by both firms are identical. |

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## Stackelberg Model: EquilibriumThis Pencast illustrates how to compute the Stackelberg equilibrium. In particular, it shows how the leader chooses its output and how the follower chooses its output. The sum of these output choices is the Stackelberg equilibrium quantity, which determines the Stackelberg equilibrium price. |

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## Stackelberg Model: Graph of EquilibriumThis Pencast graphically depicts the Stackelberg equilibrium computed in the previous Pencast. |

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## Cournot versus Stackelberg: ProfitsThis Pencast computes the profits earned by firms in a duopoly under Cournot and Stackelberg competition. It is demonstrated that the leader in the Stackelberg model manipulates the follower and profits at their expense, while both firms in the Cournot model earn the same profits. |

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## Cournot versus Stackelberg: InefficiencyThis Pencast illustrates the inefficiency (mutually beneficial trades that do not take place) that results from Cournot and Stackelberg competition. Both of these equilibria are compared to the competitive equilibrium, which maximizes welfare. The Pencast shows that Stackelberg competition produces less inefficiency than Cournot competition (relative to perfect competition). |

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## Cournot and Stackelberg Models: ExtensionsThis Screencast discusses the key assumptions of the Cournot and Stackelberg models, how the assumptions could be relaxed, and the implications of relaxing particular assumptions. |

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## Bertrand Model: The BasicsThis Screencast describes the basic features of the Bertrand Oligopoly Model. |

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## Bertrand Equilibrium with Identical ProductsThis Pencast describes the Bertrand Equilibrium when the goods being sold are identical across firms. Ultimately, the outcome is the same as would occur in a competitive market, an indication that firms are unlikely to set prices when their output is identical. |

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## Bertrand Equilibrium with Differentiated Products: Part IThis Pencast sets up the problem faced by firms in a duopoly that set prices. The information given in this Pencast is used in the three Pencasts that follow. |

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## Bertrand Equilibrium with Differentiated Products: Part IIThis Pencast uses the information in a previous Pencast (i.e. Part I) to determine firm 1’s best response function. |

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## Bertrand Equilibrium with Differentiated Products: Part IIIThis Pencast uses the information in a previous Pencast (i.e. Part I) to determine firm 2’s best response function. |

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## Bertrand Equilibrium with Differentiated Products: Part IVThis Pencast uses the best response functions derived in previous pencasts (Parts II and III) to find the Bertrand Equilibrium. |