Methodology
Four different models characterize a market structure in which there are only a few firms, each of which is large relative to the total industry. In order to correctly determine Apple’s position on the market and to determine whether Apple is superior in the industry it operates in, all four models need to be identified. The four basic oligopoly models are: Sweezy Oligopoly, Cournot Model, Stackelberg oligopoly and Bertrand model (Baye, 2012).
A firm is characterized as a Sweezy oligopoly if there are few firms in the market serving many consumers, the firms produce differentiated products, each firm believes rivals will respond to a price reduction but will not follow a price increase and barriers to entry exist (Baye, 2012). Firms have an incentive not to change their pricing behavior, provided marginal costs remain in a given range. Although this model has been criticized because it offers no explanation of how the industry settles on the initial price, it does show that strategic interactions among firms and a manager’s belief about rivals’ reactions …show more content…
An industry is characterized as a Bertrand oligopoly if there are few firms in the market serving many consumers and the firms produce identical products at a constant Marginal Cost (Baye, 2012). Firms engage in price competition and react optimally to prices charged by competitors. Consumers have perfect information and there are no transaction costs. Bertrand model is undesirable for the manager, because it leads to zero profits even if there are only two firms in the market. However, it is desirable for the consumer, because it leads to exactly the same outcome as a perfectly competitive market. Bertrand oligopoly and homogeneous products lead to a situation where each firm charges Marginal Costs and economic profits are
Four different models characterize a market structure in which there are only a few firms, each of which is large relative to the total industry. In order to correctly determine Apple’s position on the market and to determine whether Apple is superior in the industry it operates in, all four models need to be identified. The four basic oligopoly models are: Sweezy Oligopoly, Cournot Model, Stackelberg oligopoly and Bertrand model (Baye, 2012).
A firm is characterized as a Sweezy oligopoly if there are few firms in the market serving many consumers, the firms produce differentiated products, each firm believes rivals will respond to a price reduction but will not follow a price increase and barriers to entry exist (Baye, 2012). Firms have an incentive not to change their pricing behavior, provided marginal costs remain in a given range. Although this model has been criticized because it offers no explanation of how the industry settles on the initial price, it does show that strategic interactions among firms and a manager’s belief about rivals’ reactions …show more content…
An industry is characterized as a Bertrand oligopoly if there are few firms in the market serving many consumers and the firms produce identical products at a constant Marginal Cost (Baye, 2012). Firms engage in price competition and react optimally to prices charged by competitors. Consumers have perfect information and there are no transaction costs. Bertrand model is undesirable for the manager, because it leads to zero profits even if there are only two firms in the market. However, it is desirable for the consumer, because it leads to exactly the same outcome as a perfectly competitive market. Bertrand oligopoly and homogeneous products lead to a situation where each firm charges Marginal Costs and economic profits are