Theory of Oligopoly: Oligopoly is that situation where the number of firms in the market is large but not as large as in the case of perfect competition so that it is possible for each firm to affect the market price. The theory of oligopoly concentrates on the strategic interaction between firms. There are several models that look at how firms behave in an oligopolistic market. We will take a brief look at few of them. For greater information on oligopolistic models, avail of the online tutoring and assignment help option provided by Trasntutors.
Cournot Model: Cournot competition, named after Augustine Cournot , is an oligopolistic model where the firms simultaneous decide on the amount of output to produce. Cournot built a model of 2 firms based on his observations of the spring water industry. An important assumption of this model is that each firm is a profit maximizer, given the quantity of output produced by its rivals. Each firm decides the amount of output to produce so as to maximize its profit while believing that its decision will not affect on the decisions of its rivals firms.