Share
Explore BrainMass

behavior of firms in oligopoly markets

Critically discuss that there is no satisfying theory that explains the behaviour of firms in oligopoly markets.

Which theories should I include in the analysis? Which examples are relevant to these theories? Furthermore, may you include some journals that will enhance my understanding of the key points that you will include in the answer.

Solution Preview

I am providing content, links and journal names within those links which will provide you enough material on this topic. Some of the information is presented in the attached document.

There are conflicting theories as to how the firms behave or price levels are set in an oligopoly.

The Cournot model (1838) is one of the earliest models of oligopoly behaviour, of which the two underlying assumptions are that firms operate simultaneously, and that the firm sets its output level based on the expected output of its competitors. The other assumptions are that the product is homogeneous, and that there are two firms in the market. Under Cournot, the price level is influenced by the assumed output level of the other firms in the market affecting the choice of output for one firm in the market.

Bertrand (1883) criticized Cournot's approach of quantity setting, and proposed a different model, such that firms set prices instead. Hence the price level in an oligopoly can be set explicitly, and the quantity is then determined by market demand. The other assumptions are the same as in the ...

Solution Summary

Which theories should I include in the analysis? Which examples are relevant to these theories?

$2.19