Oligopoly

Oligopoly is a market structure with a small number of firms, each aware that its price or quantity choices move the market and affect rivals' profits. Because each firm must predict its rivals' strategies, the equilibrium concept is the Nash Equilibrium — a strategy profile where no firm can improve its payoff by deviating unilaterally.

The lectures cover three canonical oligopoly models under linear demand $P = A - Q$ with $MC = c$: Bertrand (simultaneous price-setting) drives price to marginal cost with just two firms — the "Bertrand paradox"; Cournot (simultaneous quantity-setting) yields an interior outcome between monopoly and perfect competition; and Stackelberg (sequential quantity-setting) gives a first-mover advantage. The comparison table in Topic 2 shows quantity rising and price falling as competition intensifies: monopoly → Cournot → Bertrand/perfect competition. See Topic 2 — Equilibrium in Different Market Structures.

When to use

Choose the appropriate oligopoly model based on what firms are competing on and whether they move simultaneously or sequentially. Bertrand applies when firms compete on price with homogeneous goods. Cournot Competition applies when firms commit to capacity or production in advance. Stackelberg Model applies when one firm credibly moves first. All three are special cases of the broader Market Structure taxonomy.