Question

Which is true of​ output-choice models of oligopoly​ behavior?

Answer 1

Answer:

A. The Stackelberg, but not the Cournot, model can be constructed as a sequential game

Explanation:

What is Oligopoly

This is a form of market where a market or an industry is dominated by large sellers who exist in a small quantity. An oligopoly has it own market structure and it results from the different types of collusion that lead to increase in prices for consumers and reduced competition.

Oligopoly as a Game

It is said that the firms in an oligopolistic market are playing games against each other. This is explained in the fact that since they are large sellers in the same market, they exist as rival firms and they make use of guessing or inferrences to understand the strategies of one another and choose a best response as a competitor.

It is in the bid to understand this competition that the game theory is applid to Oligopoly and different types of models come into play

Sequential Games Vs Continous Games

The question is specifically asking for the Oligopoly behaviour model that can be constructed as a sequential game.

The Stackelberg Duopoly

This Oligopoly model is a modelof Games Theory that can be applied to understand Oligopolistic behavour.  This model is also known as the Stakelberg Competititon and it is imperfect competition model that is based on a non-competitive or a sequential game construction.

The Stackelberg model was developed by Heinrich Stackelberg in 1934 in a work called "Market Structure and Equilibrum" and as a model that is developed from different starting assumptions it represents a breaking point in the study of market structure.

In the Stackelberg Model game, let's assume there are two firms subject to the same demand and cost functions but selling homogeneous products. One of the two firms who is given the position of the leader has the advantage of being better known or has a better brand equity giving him abetter placement to decide which quantity of the homogeneous product to sell first.

The second firm who take s the position of teh follower is must therefore observe the actions of the first firm and decide on the quantity of the same product to produce.

The strength of the Stackelberg model therefore, is to use a backward induction method as obtainable in any sequential game to decide the production quantity of firm B

The Cournot model on the other haand is called a simultaneous model.