B QuestionsShort Answers 12 points 2 What are the advantages

B. Questions/Short Answers (12 points)

2. What are the advantages of the HHI over concentration ratios in measuring the degree of concentration in an industry?

3. What is the Bertrand model? What is its relationship to the Cournot model?

4. What is the Stackelberg model?

Solution

Q. 3). Bertrand Model

Bertrand model of competition was developed by Joseph Louis Francois Bertrand. This model describes interactions between the sellers that set prices and their buyers who select the quantities at the price set by the sellers (firms).

Assunptions:-

a) At lease two firms producing homogeneous (same) product.

b) These two firms can not cooperate in any of the way.

Q. 4) Stackelberg model:-

Stackelberg model was named after Heinrich von stackleberg, a german economist. This is a kind of strategic game in the economics. In this kind of strategic game, leader firm moves first and afterwards followers firms moves sequentially.

Q. 2) The advantages of the HHI over concentration ratios in measuring the degree of concentration in an industry:-

i) HHI provides more complete framework of industry concentration than concentration ratio.

ii) HHI uses the market shares of all firms prevalent in the industry and opposite to concentration ratio, HHI will change if there is shift in market share between larger firms.