Critically discuss the view that the Cournot, Bertrand and Stackelberg models of oligopoly are fundamentally flawed and are unable to explain recent events in the markets and industries.

Critically discuss the view that the Cournot, Bertrand and Stackelberg models of oligopoly are fundamentally flawed and are unable to explain recent events in the markets and industries.

1. Introduction – 150 words
2. Theory – 600 words
3. Analysis and empirical examples – 600 words
4. Conclusion – 150 words

Detailed structure:
Cournot oligopoly – explain and present the model with mathematical equations and graphs
1. Main assumptions
2. Cournot equilibrium (Nash)
3. Implications of Cournot’s assumptions
4. Reaction curves approach – “Iso – profit curves” – present with graph
5. Limitations of the model
6. Empirical example

Bertrand’s Model – “Buyer’s perspective”
1. Assumptions
2. Bertrand equilibrium
3. Iso – profit locus: Bertrand’s Model – explanation + graph
4. Implications of the model
5. Limitations
6. Bertrand’s equilibrium with differentiated products
7. Example

Stackelberg’s models – “Price leadership”
1. Stackelberg’s model: Leader’s demand curve;
2. Present the model with equations and graph
3. Present Stackelberg’s equilibrium + graph
4. Limitations of the model: Stackelberg games
5. Example

Compare the three non-collusive models: Bertrand, Cournot and Stackelberg

The essay should be an analytical answer to the topic.

Example references:

Giocoli, N. (2004), “Nash equilibrium”, History of political economy, 36 (4): 639-666
Dimand, R. W. and Dore, M. H. I. (1999), “Cournot, Bertrand and Game Theory: A further note”, American Economic Journal, 27 (3): 325-33
Estrin, Dietrich and Laidler (2012), Microeconomics – Chapters 13 and 15

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