Role Of Competition In Cournot Oligopoly

Oligopoly market is where there is a few number of sellers exists. In an oligopoly market, prices are since competition is not stiff. Since there are a few number of vendors in the market, price actions of a competitor influence the prices for the rest of the producers. Competition that arises from the form of market can lead to a number of outcomes or reactions. It is a common trend for trade barriers to be effected in an oligopoly market. In addition, cartels exist in an Oligopoly market. The cartels are responsible for setting the prices. Sometimes they form alliances that are responsible for dictating the prices of goods and services in the market (Hildenbrand, 2010). It is a common practice for firms in an oligopoly market to collude

They determine the volume of products they are supposed to produce separately within a specified period. The main assumption made in a Cournot oligopoly is that the core business activity of a business entity is profit maximization. It assumes that the decision of determining the volume level is independent. Furthermore, it is assumed that all players in the market are aware of the cost function and the number of players that exist in the market. However, the cost function may vary from one organization to another (Giocoli, 2003).
Cournot’s

In Bertrand equilibrium, the unit cost for two companies is equivalent to the rates. In such scenarios, no business entity is in a position to make profits. Consequently, if one company fixes a price that is equal to the unit cost than another company does an opposite decision, the market will remain indifferent (Tremblay and Tremblay, 2011).
In a Bertrand model, one firm monitors how the competing firm fixes its prices. Firm will set its prices based on what it predicts their rival will set up the prices.
In the model, the two firms are competing on the basis of prices rather than quantity The main weaknesses associated with the model are that it assumes that firms have the ability to meet the demand in the market (Puu and Sushko, 2002).

Stackelberg’s models - "Price Leadership."
The price leadership model is similar to the Cournot model. The firms in this type of model have the opportunity of determining the quantity of output they want to produce. However, the decision of deciding the quantity of output is not made during a given period. Under the model, the assumptions made are:
1. Firms are at liberty to decide their output
2. Firms monitor pricing activity of their rivals
3. Firms have an opportunity to choose their capacity once