Free Essay About Oligopoly

Curnot competition is a model of an imperfect competition whereby two different firms with similar or identical cost function compete with goods of similar physical characteristics and quality in a static form. The situation is different in Stackelberg competition, where one firm enjoys environmental advantages based on her history of operational advantages such as brand equity. However, the follower in Stackelberg competition has to adjust to the leader's quantity supplied to the market.
The implication of the statement is that both the firms in this competition are set to experiencing maximum profit. However, the follower thinks that the leader will choose its output as its best strategy so it chooses its output given what is best thought of the leader's strategy. The adjustment is to stabilize the market competition. To realize the maximum benefits, the two firms have to make a maximum sales volume at higher prices in the market.
Curnot's approach stems in to maximize both sales volume and the market prices, by defining optimum market prices, which presents the response of the follower in the Stackelberg competition framework. This is necessary or else the one with lower market price will enjoy much market share. In the same order, firms in the Stackelberg competition follows the leader’s competitive output for the market to develop an equilibrium level. Even though Stackelberg does not conquer with the policy of simultaneous decision making, the aim in the market is to realize maximum benefits. Therefore, the follower in this case responds to the disequilibrium factor by responding to the market demand from the leader's supply view point. The reaction functions must therefore respond to the same to re-establish the market equilibrium.
Such a competition, therefore, stipulates a reorganization in the market demand to control the market share and maximize benefits. The situation has to be re-adjusted as in Courton's principle.