This can be substituted back into Firm Two’s reaction function to solve for Q∗2. We have now covered three models of oligopoly: Cournot, Bertrand, and Stackelberg.

Calculating an ESS

1. Payoff for X = (proportion of X)×(payoff for X vs. X) + (proportion of Y)×(payoff for X vs. Y)
2. and.
3. Payoff for Y = (proportion of X)×(payoff for Y vs. X) + (proportion of Y)×(payoff for Y vs. Y)

The difference between Cournot and Stackelberg equilibrium is that Cournot equilibrium is chosen in a way that each firm maximizes their profit. In other words, Cournot equilibrium is when firms choose sequential, and Stackelberg is when firms choose equilibrium simultaneously.

The Stackelberg leadership model is a strategic game in economics in which the leader firm moves first and then the follower firms move sequentially. There are some further constraints upon the sustaining of a Stackelberg equilibrium.

Suppose Chamberlin’s model of oligopoly consisting of an “small group” of firms and Sweezy’s Kinked demand curve models are regarded as most important models of this category.

Perfect oligopoly is the form of oligopoly in which each firm produces homogeneous products. Here all products are perfectly substitutable. So, it can be also called as pure oligopoly. For example, cement industry or chemical industry.

Depending on the Openness of the Market, Oligopoly is of Two Types:

• Open Oligopoly Market.
• Closed Oligopoly Market.
• Collusive Oligopoly.
• Competitive Oligopoly.
• Partial Oligopoly.
• Full Oligopoly.
• Syndicated Oligopoly.
• Organised Oligopoly.

Collusion can lead to: High prices for consumers. This leads to a decline in consumer surplus and allocative inefficiency (Price pushed up above marginal cost) New firms can be discouraged from entering the market by types of collusion which act as a barrier to entry.

Two Types of Collusion Collusion can take one of two forms–explicit collusion and implicit collusion. Explicit Collusion: Also termed overt collusion, this occurs when two or more firms in the same industry formally agree to control the market.

Examples. Collusion is illegal in the United States, Canada and most of the EU due to antitrust laws, but implicit collusion in the form of price leadership and tacit understandings still takes place.

Such collusion occurs when antimonopoly laws exist that prohibit formal agreements over such activities. Collusion is hard to prove and may involve enforcers arguing that the activity of firms suspected of colluding in setting prices and output targets makes sense only in terms of the benefits of collusion.

Collusion is a non-competitive, secret, and sometimes illegal agreement between rivals which attempts to disrupt the market’s equilibrium. The act of collusion involves people or companies which would typically compete against one another, but who conspire to work together to gain an unfair market advantage.

A time-honored method of detecting collusion is finking by a dissident cartel member or an ex- employee, or the complaints of customers. Such evidence has obvious attractions, but one should be suspicious of complaints by a rival firm not party to the conspiracy.

Employers can also take a few steps to prevent corruption and collusion before it devastates their companies.

1. Monitoring Behavior.
2. 1) Preset Limits.
3. 2) Consecutive Vendor Invoice Numbers.
4. 3) Behavior.
5. Preventative Measures.
6. 1) Training.
7. 2) Creating a Safe Environment.
8. 3) Educating Management.

Avoid collusion

1. work with one or more people to prepare and produce work.
2. allow others to copy your work or share your answer to an assessment task.
3. allow someone else to write or edit your work (except for the use of a scribe approved by Disability Services)
4. write or edit work for another student.

Tacit collusion is where firms reach a collusive understanding without such explicit communication. Consequently, tacit collusion is not usually considered illegal, despite causing similar effects as explicit collusion.

Tort fraud Another form of collusive lawsuit involves fraud, where two persons agree to fake an accident, so that the “victim” can sue the other person in order to collect from the other person’s insurance. This is a crime, and insurance companies investigate claims to determine that no collusion is involved.

Cartels and collusive agreements are illegal. They result in anti-competitive practices like price-fixing and market-sharing which, in turn, reduce output and raise prices.

The role of competition in the private sector is recognized in the Philippine Constitution as a state policy. No combinations in restraint of trade or unfair competition shall be allowed.” This provision is a statement of public policy and does not necessarily prohibit monopolies per se.

Antitrust laws protect competition. Free and open competition benefits consumers by ensuring lower prices and new and better products. In a freely competitive market, each competing business generally will try to attract consumers by cutting its prices and increasing the quality of its products or services.