Presenting a model to determine the equilibrium point in the Oligopoly

Presenting a model to determine the equilibrium point in the Oligopoly

Subject Areas :

Reza Basiri ¹ , Mansour Abedian ² , Saeed Aghasi ³ , Zahra Dashtlali ⁴

1 - Department of Management ,Dehaghan Branch, Islamic Azad University, Dehaghan, Iran
2 - Department of Industrial Engineering, Najafabad Branch, Islamic Azad University, Najafabad
3 - Assistant Professor, Department of Management, Dehagan Branch, Islamic Azad University, Dehagan, Iran
4 - Assistant Professor, Department of Management ,Dehaghan Branch, Islamic Azad University, Dehaghan, Iran

Received: 2023-10-24 Accepted : 2024-03-04 Published : 2024-08-21

Keywords: Price maker, price taker, Cournot&ndash, Nash equilibrium, oligopoly, game theory,

Abstract :

Oligopoly is one of the common structures of the market and is actually a state between pure competition and pure monopoly. The theoretical literature distinguishes between the behaviors of companies in adopting competitive pricing strategies. It is common to study models where all firms are price-makers or price-takers, but the simultaneous application of price-making and price-taking strategies by firms producing a similar product using game theory has not received much attention. Therefore, the purpose of this article is to use game theory with equilibrium concepts forward-looking equilibrium reasoning, and backward-looking individual learning simulation tools to investigate the behavior of companies. The results of the recent study showed that the Cournot-Nash model is a stable model for the real evaluation of pricing strategies in a dynamic oligopoly market. However, with a larger number of firms, a unilateral deviation from Cournot's behavior becomes profitable. In this paper, we have formally proved that the only possible stable market is the Cornot market, where every firm can be a price taker. Conversely, a market in which all firms accept only prices is never stable, and therefore Walrasian equilibrium is not applicable according to the findings. When there are no stable markets, the market does not evolve toward a fixed composition, but the number of price takers typically decreases. In such a situation, the market composition follows a cyclical pattern that is related to the stability or volatility of crude expectations.

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