Question

For each market listed below, determine whether it is best characterized as a Cournot oligopoly, Stackelberg oligopoly, or Bertrand oligopoly.
a. Oil production. Each firm produces output independently and the market price is determined by the total amount produced.

i. Stackelberg oligopoly
ii. Cournot oligopoly
iii. Bertrand oligopoly
b. Diamond production. DeBeers is the leader that sets diamond production, and smaller firms follow with their own levels of production.

i. Stackelberg oligopoly ii. Cournot oligopoly iii. Bertrand oligopoly
c. Competitive bidding by identical contractors. The contractor bidding the lowest fee wins the contract

i. Cournot oligopoly
ii. Bertrand oligopoly
iii. Stackelberg oligopoly

Answer 1

Answer: A. Cournot Oligopoly B. Stackelberg Oligopoly C. Bertrand Oligopoly

Explanation:

Cournot Model: In Cournot model, firms produce output independently and then set their prices. In this type of model, the products are typically standardized.

Stackelberg Model: In Stackelberg model, there is one firm who is quite dominant and that firm sets the price. Whereas, other firms or the competing lower firms usually follow the price leader.

Bertrand Model: In this model, firms have interaction with buyers in order to set prices and quantities.