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Overview of the Chapter
After Chapter 17, which describes the “philosophy” of Volume II, the volume starts in
earnest with the classic models of oligopoly due to A. Cournot and J. Bertrand. Few
theory types take these models seriously as models of oligopolistic competition per
se. Nonetheless, they are important to understand: They are ingredients in more complex models that are important in microeconomic theory; for instance, the Green–Porter
model of implicit collusion is based on period-by-period quantity (Cournot) competition (in Chapter 22). Other repeated-interaction models posit period-by-period price
(Bertrand) competition. Models in the literature of Industrial Organization, concerning,
for instance, entry-deterrence, product variety and placement, and technology choice,
often employ one or the other of these classic models. And, structural empirical work
in IO often employ one of these two models. Finally, from a methodological perspective, they illustrate and (in variations) provide practice in the first techniques of noncooperative game theory: dominance and Nash equilibrium in strategic-form games.
Since this is the first in-earnest chapter, let me reiterate: Most chapters in the text
give you one or two “variations” on the basic economic theme of the chapter. The
problems, in turn, often provide additional variations, including variations that are
contextually quite different from the context of the text chapter. So, for instance, the
last two problems in Chapter 18 involve the freerider problem and a caricature model
of Tiebout equilibrium. Following the philosophy that this volume is a set of etudes ` on
which you should practice, failing to do these problems is like learning one variation
that involves a particular technique, rather than really mastering the technique. Do the
problems.
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