ABSTRACT
When you are finished with this chapter you should understand:
The basic models we use to describe behavior in a duopoly market where two firms compete by choosing either price or quantity
That in the Cournot model of quantity competition, when two firms compete by choosing quantity of output, the equilibrium market price is lower, individual firm profits are lower, and total market output is higher relative to the monopoly equilibrium
That in the Bertrand model of price competition, adding just one more firm to a market which was initially monopolized drives the market to the perfectly competitive equilibrium, where both firms earn zero profits
How the simple Bertrand model can be extended to allow for product differentiation or capacity constraints
How the Stackelberg model describes a market where one firm can commit to the choice of a strategy before its competitor, and that when firms compete in quantities, the Stackelberg leader has a first-mover advantage and is able to increase profits and market share at the expense of its competitor
