Which of the following are commonly used models to study pricing and output decisions in oligopoly markets?

• A. Perfect competition, monopoly, and monopolistic competition models
• B. Game theory, supply and demand, and cost minimization models
• C. Edgeworth, Nash equilibrium, and price discrimination models
• D. Cournot, Bertrand, and Stackelberg models

Answer: (D)

Verified step by step guidance

1. Understand that oligopoly markets are characterized by a few firms whose decisions on pricing and output affect each other, making strategic interaction crucial.
2. Recognize that common models to analyze oligopoly focus on how firms compete either on quantities or prices, and how they anticipate rivals' reactions.
3. Identify the Cournot model, where firms choose quantities simultaneously, assuming rivals' quantities are fixed, leading to a Nash equilibrium in quantities.
4. Understand the Bertrand model, where firms compete by setting prices simultaneously, assuming rivals' prices are fixed, often resulting in price competition outcomes.
5. Learn about the Stackelberg model, which introduces a sequential move game where one firm (the leader) sets its output first, and the other firms (followers) react, highlighting the advantage of commitment.