DUOPOLY

BATCH 19
Group Members: Deepak Joishar  Tulsi Patel  Shivanand Maled  Deepak Khot  Anu Kumar Ratra  Birendra Yadav 

Roll no 18 Roll no 37 Roll no 24 Roll no 29 Roll no 05 Roll no 44

CONTENT
1 2 3 4 5 6 7 Meaning Cournot Model Assumption Of Cournot Model Chamberlin Model Stackelberg Model Bertrand Model Edgeworth Model

MEANING
y Duopoly is a special case of the theory in which there are

only two sellers. y The sellers are completely independent and no agreement exists between them. y A change in price and output of one will effect the other and may set a chain of reaction. y Each sellers takes in to account the effect of his policy on that of his rival.

COURNOT MODEL
y The old determinate solution to the duopoly problem is by

the french economist.

y AA cournot in 1838. y Took the case of two mineral water springs situated side

by side and owned by two firms A and B.

ASSUMPTION OF COURNOT MODEL

y Two independent sellers y Produce and sell a homogeneous product y Numbers of buyers is large y Each sellers knows the market demand curve y Cost of production is assumed to be zero y Both have identical cost and demands y The entry of firm is blocked y Each sellers aims at obtaining maximum net revenue or

profit.

COURNOT MODEL GRAPH

MR=100-4Q

Pm=55

Pc=10

MC=10

Qm = 22.5

Qc = 45

CONTINUE..
y since price is driven to MC in a competitive market with many firms, Pc = MC = 10 and the market output would be (100 2Q = 10) Q = 45. y The overall profit across firms would be y 10(45) - 10(45) = 0. y Now, lets consider a model thought up by a guy named Cournot (rhymes with tour go). Cournot said consider only two firms selling in a market. The way that each firm understands the market is that each will pick its own output level. Then when the other firms output level is added in the price will determined from the demand curve.

CHAMBERLIN MODEL
y Prof. Chamberlin proposed a stable duopoly solution

recognizing mutual dependence between the two sellers.

y Criticized and rejected both Cournot and Bertrand model. y According to Chamberlin model , when interdependence

is recognised between sellers both direct and indirect influences of a change in the price.

GRAPH
y In this graph,
D P r i c P1 e P2 O A Quantity

S G

Seller A enter in market as a monopolist and maximize his profit by selling OA. Seller B enter in market, and consider SD1 segment of market demand curve.
D1

Stackelberg s Model
y Heinrich von Stackelberg's model: firms act sequentially y Firm 1 y Must consider the reaction of Firm 2 y Firm 2 y Takes Firm 1s output as fixed and therefore determines output with the Cournot reaction curve: Q2 = 15 - 1/2Q1 y Substituting Firm 2s Reaction Curve for Q2:

GRAPH

CONCLUSION
y y

Firm 1s output is twice as large as firm 2s Firm 1s profit is twice as large as firm 2s

Bertrand Model
y Assumptions of the model:  If the two firms charge the same price each will get half of

the market demand at that price.  If one firm charges more than the other, even just a little bit, then the one with the higher price.  Each firm wants to maximize its profit.

P1

45

P1

MC

MC

P2

EDGEWORH MODEL
y According to Edgewoth model, each duopolist believes that

his rival will continue to charge the same price as he is just doing irrespective of what price he himself sets.
y The main different between Edgeworth s model and

Bertrand s model is that whereas in Bertrand, productive capacity of each, duopolist is practically unlimited so that he could satisfy any amount of demand
y But in edge worth's model, the productive capacity of each

duopolist is limited so that neither duopolist can meet entire demand at the lower price ranges.

GRAPH - EDGEWORTH
D PRICE E1 S1 T1 Q R P

E S T

C1

B1

A1

SOURCES:
y MICROECONOMIC THEORY y BUSINESS ECONOMICS y INTERNET

- M.L.JHINGAN - H.L . AHUJA - WIKIPEDIA