Discuss examples in which different models might be most appropriate (think for example of the commodity market or air transport).Say no to plagiarism. Get a tailor-made essay on “Why violent video games should not be banned”?Get an original essayIn this essay, I will discuss the models of oligopolistic behavior, analyze them and see whether they are realistic or not and evaluate them with some examples. where they may be most appropriate. Oligopoly is defined as a form of market in which a market is dominated by a small number of sellers. There are many different models for the behavior of oligopolies, such as the Cournot solution, the Sweezy Kinked Demand Curve solution, the Stackelberg model, and the Bertrand model. The Cournot model focuses on the behavior of quantities, prices and profits within a duopoly (if two companies are selling products in the same market). In this model, it is assumed that one firm will not react to all changes resulting from the other firm's decision. Firm 1 can choose an output of p1, assuming that firm 2 has a fixed output level at p2. The same hypothesis can be formulated in the other direction; for example, p2 is chosen assuming that p1 can be treated by the second firm as given. Within oligopolistic markets there are a very large number of firms, so this assumption makes sense as firms can make their decisions without basing them on those of others. However, on the other hand, even though it is a duopoly, in Cournot equilibrium other firms will still notice changes in other firms if quantities do not change. Another way to analyze Cournot equilibrium mathematically is as the industry demand curve. is: An isoprofit curve is "the locus of points in a space defined by different levels of production for firms 1 and 2 that report the same level of profit to firm 1." They are generally concave and the level of Profits decrease with the height of the isoprofit curve above the horizontal axis. Before analyzing the Cournot equilibrium, we need to define reaction functions or best response functions. It specifies a firm's optimal choice for something like output that depends on the choices of its rivals. Another model that deals with oligopolistic behavior is the Bertrand model. It was derived by Joseph Bertrand, a 19th-century French mathematician and economist. This model can be compared to the Cournot model, however, instead of using the assumption that a company chooses its output, it decides the price. The main assumption in this case is that the firm's rival keeps its price constant. There are three main principles of this model: first, the idea of ​​homogeneity is very important in Bertrand's model and if it is modified, so are the results. Homogeneity is simply the idea that all companies sell the same product. Secondly, positive profits can be achieved through product differentiation and finally, each company in the market has sufficient capacity to supply the market. Bertrand used isoprofit curves and best response functions and his equilibrium is reached when characterized by equal prices and line 45 at the origin. It can be stated that the Bertrand equilibrium is a Nash equilibrium for the price setting game. The equilibrium price must be equal to the marginal cost because if it exceeds it, then company 1 will always lower its price because it will believe that company 2 will not follow and thereforeConsequently, company 1 will have the entire market at its disposal and vice versa. Price reductions will not occur if both firms charge the same price as marginal cost and thus industry profits will be zero. This leads to a perfectly competitive market despite the small number of companies present in the market. Companies may decide to collude to avoid not making profits, because the formation of cartels will seem more attractive than Cournot's solution. » Heinrich von Stackelberg was a German economist who studied market organization and the strategic interaction of business markets in Marktform und Gleichgewicht (Vienna: Julius Springer, 1934). " Therefore, he invented the Stackelberg model which is another model used with oligopolistic markets is based on the idea of ​​the Cournot model. Stackelberg used the Cournot model to examine what can happen If a company tried to infer the reaction of the other company, using the information provided by the results, Stackelberg hoped that this would help improve the equilibrium position of the company discovering the information This situation can be considered asymmetric, with. one company assumes the role of leader and the other follows closely as a follower The Stackelberg model can be simply defined as an extension of the Cournot model and the idea of ​​the leader-follower can be extended in terms of. Stackelberg mode, company 1 seeks to maximize its profits knowing that company 2 knows that company 1's decision is made. Therefore, company 2 will always look to its reaction function to make a decision. , while firm 1 will evaluate the situation of firm 2. reaction function and therefore maximize its profits. The consequence of this is illustrated in Figure 1.1 (17.7). The kinked demand curve conjecture is another model within oligopolistic and duopolistic markets where it is responsible for the stability of these markets. The kinked demand curve conjecture is the idea that firms will match a price decrease but not an increase. By analyzing the Cournot and Stackelberg models, we can see how the leader manipulates the situation to his advantage. With the Cournot model, companies adjust their decisions based on the assumption that the reaction of other companies is not what they initially thought. In the Stackelberg model, firm 1 knows the behavior of firm 2 and therefore decides on a production level higher than its own Cournot reaction function in order to maximize its profits. Firm 2 reacts to this and realizes the behavior of firm 1 and consequently discovers that it is in Cournot equilibrium. Therefore, it produces less and makes less profit than it thought and, as a result, firm 1 earns more and makes higher profits. A cartel may be more difficult in this type of situation than under Bertrand or Cournot conditions because it would be more difficult to monitor the behavior of the company. Both companies may want to be leaders, but under the Stackelberg model equilibrium will not be achieved. Under Cournot conditions, they could decide on collusion or a price war to choose who will be the leader and the follower. Each of these models can be considered realistic in some respects and not in others. The Bertrand and Cournot models have very different results, because the Bertrand model results in a welfare-optimal quantity and price, while the Cournot equilibrium produces a price and quantity between the levels welfare optimality and monopoly. This can be defined.