Compare and Contrast Equilibria of Cournot Model to Monopoly
Introduction:
- Define Oligopoly
- Define Q setting oligopoly
- Define Monopoly
- Market structures of Cournot vs Monopoly
Main Body:
- Diagrams
- Why monopolists have this equilibrium?
- Why Cournot model has this equilibrium?
- Have u covered all assumptions and impacts?
Oligopoly is a market structure with a few large firms in the market and as the firms
are large relative to the market they respond strategically to each other’s decisions.
Contemporary oligopoly models can be either price (Bertrand) or quantity setting
(Cournot). A quantity-setting oligopolist is an oligopolist firm which chooses the level
of output it produces as a strategic variable to compete with rival oligopolists based
on. In contrast a pure monopoly market is where there is 1 large seller of a
good/service and thus there is no competition whatsoever. Both market structures
have high entry barriers where firms cannot enter the market even in the long run.
However, a monopolist’s product is differentiated in order to give it that monopoly
power in a market whereas in a Cournot oligopoly model the products can be
differentiated or undifferentiated.
The diagram in figure 1 displays the equilibria of both a pure monopoly (at Pm and
Qm) as well as of a Cournot oligopolist Firm ‘A’ (P* and Q*A).
The monopolist has
a negatively sloped
demand curve due
to the assumption
made that the
monopolist is a
price maker whilst
buyers are price
takers. As a result
of this assumption
the monopolist is
able to influence
the price it sells at
and the buyers of
Introduction:
- Define Oligopoly
- Define Q setting oligopoly
- Define Monopoly
- Market structures of Cournot vs Monopoly
Main Body:
- Diagrams
- Why monopolists have this equilibrium?
- Why Cournot model has this equilibrium?
- Have u covered all assumptions and impacts?
Oligopoly is a market structure with a few large firms in the market and as the firms
are large relative to the market they respond strategically to each other’s decisions.
Contemporary oligopoly models can be either price (Bertrand) or quantity setting
(Cournot). A quantity-setting oligopolist is an oligopolist firm which chooses the level
of output it produces as a strategic variable to compete with rival oligopolists based
on. In contrast a pure monopoly market is where there is 1 large seller of a
good/service and thus there is no competition whatsoever. Both market structures
have high entry barriers where firms cannot enter the market even in the long run.
However, a monopolist’s product is differentiated in order to give it that monopoly
power in a market whereas in a Cournot oligopoly model the products can be
differentiated or undifferentiated.
The diagram in figure 1 displays the equilibria of both a pure monopoly (at Pm and
Qm) as well as of a Cournot oligopolist Firm ‘A’ (P* and Q*A).
The monopolist has
a negatively sloped
demand curve due
to the assumption
made that the
monopolist is a
price maker whilst
buyers are price
takers. As a result
of this assumption
the monopolist is
able to influence
the price it sells at
and the buyers of
