Definitions
- Best Response Curve: A function that determines one’s best response value of the strateigic variable, given the opponent’s strategic variable value.
- This is equivalent to the pure strategy function (see definition)
- denotes residual demand for one firm
Assumptions
- Assume that products are identical [=no differentiation]
- Assume there are two firms in the market
- Assume that is constant
Types
- Bertrand Price Competition
- Product Differentiation
- Cornout Quantity Competition
- Sequential (=Stackleberg)
There are thus 2 ways to fill in the gap between 2-firm oligopoly and perfect compeition:
- N-firm Oligopoly as an extension of Cornout’s 2-firm oligopoy analysis
- Monopolistic Competition, where firms strategically set differentiation and price