When Oligopolistic Firms Successfully Maintain A Long-Term Collusive Agreement
When, in a given market, oligopoly companies decide how much they produce and the price they charge, they are tempted to act as if they were a monopoly. Joint action allows oligopolistic companies to maintain industrial production, demand a higher price and share profits. If companies work together in this way to reduce production and keep prices high, it is called collusion. A group of companies that have entered into a formal agreement to produce monopoly production and sell it at the monopoly price is referred to as an agreement. A more detailed analysis of the difference between the two can be seen in Clear It Up below. The dominant company thus takes into account the reaction of marginal companies to production decision-making. This is Nash`s balance for the dominant company, as it takes into account the behavior of other companies while completing its strategic decision. The model actually covers a sector with a dominant company and many small businesses. Joseph Louis Francois Bertrand (1822-1900) was a French mathematician who developed a competing model on the Cournot model. Bertrand asked: “What would happen in an oligopoly model if each company maintained the price constant of the other company?” The Bertrand model is an oligopoly model in which companies produce a homogeneous good, and each company takes the price of competitors who are determined when setting the price to be paid. There is often a high level of competition between companies, as each company makes decisions about prices, quantities and advertising in order to maximize profits. Since there are only a small number of companies in an oligopoly, the level of profit of each company depends not only on the decisions of the company, but also on the decisions of other companies in the oligopolistic industry. The Nash balance calculated for the three oligopoly models (Cournot, Bertand and Stackelberg) is an uncooperative balance, as companies are rivals and do not enter into collusion.
In these models, companies maximize profits against the actions of their competitors. This is a common practice, as collusion is illegal and price wars are costly. The way in which real oligopolists deal with prisoner dilemmas is the theme of the next step. This equation is called Firm One`s “reaction function.” This is as far as the mathematical solution can be simplified and represents the Cournot solution for Firm One. This is a reaction function because it describes Firm One`s reaction by indicating the starting level of Firm Two. This equation represents the strategic interactions between the two companies, as changes in Firm Two`s production level will result in changes in Firm One`s response. Firm One`s optimal output level depends on Firm Two`s behavior and decision-making. The oligopolies are linked in both behavior and results. For example, the market share of each automotive company depends on the prices and volumes of all other companies in the sector. If Ford lowers prices relative to other automakers, it will increase its market share at the expense of other automakers.
In the folding curve model, the MR is discontinuous due to the asymmetrical nature of the needs curve. For linear needs curves, the MR has the same interception y and twice the slope … the serskint in two different sections for the MR curve, if the demand has a curvature. The graph shows how price rigidity occurs: any change in marginal costs results in the same price and quantity in the curve model. As long as the MC curve remains between the two sections of the MR curve, the optimal price and optimal quantity remain the same. Vertical agreements occur when companies in the same sector engage in anti-competitive practices at different stages of the supply chain. In an oligopoly, companies are interdependent; they are concerned not only with their own decisions about the quantity to be produced, but also with the decisions of other companies in the market. Game theory provides a useful framework for thinking about how companies can act in the