Discuss examples where different models might be most appropriate (think for example the commodity market or air travel). Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't 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 more suitable. 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 oligopoly behavior 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 firms are selling products in the same market). Within 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 a production level of p1, assuming that firm 2 has a fixed production level of p2. The same hypothesis can be made in reverse; for example, p2 is chosen assuming that p1 can be treated by the second firm as given. Within oligopolistic markets there are a huge number of firms, so this hypothesis makes sense since firms can make their own decisions without basing them on those of others. However, on the other hand, even if it is in a duopoly, in the Cournot equilibrium the other firms will still notice the change of the other firms if the quantities do not change. Another way to analyze Cournot equilibrium mathematically is to say that the industry demand curve is: An isoprofit curve is "the locus of points in a space defined by different levels of output for both firms 1 and 2 that produce the same level of profit for firm 1."` They are generally concave and the level of profits decreases with the height of the isoprofit curve above the horizontal axis. Before analyzing Cournot equilibrium, we need to define reaction functions or best response functions. It specifies a firm's optimal choice for something like production dependent 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 firm chooses production, it decides on price. The main assumption in this case is that the firm's rival keeps the price constant. There are three fundamental principles of this model, firstly the idea of ​​homogeneity is very important within the Bertrand model and if it is changed 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 firm within 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 the 45 line at the origin. It can be said 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 firm 1 will always lower its price because it will believe that firm 2 will not follow suit and consequently firm 1 will have the entire market to its own arrangement and vice versa. Price cuts are notthey will verify if both firms apply the same price as marginal cost and therefore the profits of the sector will be equal to zero. This leads to a perfectly competitive market despite the small number of companies present on the market. Firms may decide to collude to avoid not making profits because cartel formation will seem more attractive than Cournot's solution.markets in Marktform und Gleichgewicht (Vienna: Julius Springer, 1934). If one firm attempted to infer the other firm's reaction, using the information provided by the results, Stackelberg hoped that this would help improve the equilibrium position of the firm discovering the information. This situation can be defined as asymmetric, one company taking on the role of leader and the other company pursuing the role of follower in close collaboration. The Stackelberg model can be simply defined as an expansion of the Cournot model and the leader-follower idea can be extended in terms of According to the Stackelberg mode, firm 1 tries to maximize its profits knowing that firm 2 knows that firm 1's decision is fixed. As a result, firm 2 will always look at its reaction function to make a decision, while firm 1 will evaluate firm 2's reaction function situation and thus maximize its profits. The consequence of this is shown in figure 1.1 (17.7). The bent demand curve hypothesis is a further model within oligopolistic and duopolistic markets where it is responsible for the stability of these markets. The bent demand curve conjecture is the idea that firms will match a decrease in prices 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 fact 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 consequently decides on a higher output level than its Cournot reaction function so that it can maximize profits. Firm 2 responds to this and carries out Firm 1's behavior and consequently finds that it is in Cournot equilibrium. Thus, it produces less and makes less profit than it thought, and as a result, firm 1 earns more and has higher profits. A cartel might be more difficult in this type of situation than in Bertrand or Cournot situations because it would be more difficult to follow the company's behavior. Both companies might want to be leaders, but within the Stackelberg model it would not achieve equilibrium. Under Cournot conditions, they might opt ​​for collusion or a price war to decide who the leader and follower are. Each of these models can be considered realistic in some ways and not in others. The Bertrand and Cournot models are very different in their results since with the Bertrand model the optimal quantity and price of well-being are obtained while the Cournot equilibrium produces a price and quantity between the optimal levels of well-being and monopoly . This can be called Bertrand's proposition. In the Cournot and Bertrand models, firms take a conjectural assumption of firm behavior as too restrictive, so this leads to the impossibility of a collusive agreement. Cournot's solution is somewhat unrealistic as there seems to be a lot of criticism that a company that is already in the industry might feel like a potential leader if other companies enter the market where they will act as followers. The Cournot model does not seem practical enough.