DUOPOLY

BATCH 19
Group Members:

 Deepak Joishar - Roll no 18

 Tulsi Patel - Roll no 37
 Shivanand Maled - Roll no 24
 Deepak Khot - Roll no 29
 Anu Kumar Ratra - Roll no 05
 Birendra Yadav - Roll no 44
CONTENT
1 Meaning

2 Cournot Model

3 Assumption Of Cournot Model

4 Chamberlin Model

5 Stackelberg Model

6 Bertrand Model

7 Edgeworth Model
MEANING
Duopoly is a special case of the theory in which there are
only two sellers.
The sellers are completely independent and no agreement
exists between them.
A change in price and output of one will effect the other
and may set a chain of reaction.
Each sellers takes in to account the effect of his policy on
that of his rival.
COURNOT MODEL
The old determinate solution to the duopoly problem is by
the french economist.

AA cournot in 1838.

Took the case of two mineral water springs situated side

by side and owned by two firms A and B.
ASSUMPTION OF COURNOT
MODEL
Two independent sellers
Produce and sell a homogeneous product
Numbers of buyers is large
Each sellers knows the market demand curve
Cost of production is assumed to be zero
Both have identical cost and demands
The entry of firm is blocked
Each sellers aims at obtaining maximum net revenue or
profit.
COURNOT MODEL GRAPH
MR=100-4Q

Pm=55

Pc=10 MC=10

Qm =
Qc =
22.5
45
CONTINUE..
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.
The overall profit across firms would be
10(45) - 10(45) = 0.
 Now, let’s 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 firm’s output level is added in the
price will determined from the demand curve.
CHAMBERLIN MODEL
Prof. Chamberlin proposed a stable duopoly solution
recognizing mutual dependence between the two sellers.

Criticized and rejected both Cournot and Bertrand model.

According to Chamberlin model , when interdependence

is recognised between sellers both direct and indirect
influences of a change in the price.
GRAPH
In this graph,
D
Seller A enter in
market as a
P monopolist and
r
i
maximize his profit by
K
c P1 S selling OA.
e
Seller B enter in
P2 G
market, and consider
O
SD1 segment of market
E A B D1
demand curve.
Quantity
Stackelberg’s Model
Heinrich von Stackelberg's model: firms act sequentially

Firm 1
 Must consider the reaction of Firm 2

Firm 2
 Takes Firm 1’s output as fixed and therefore determines
output with the Cournot reaction curve: Q2 = 15 - 1/2Q1
 Substituting Firm 2’s Reaction Curve for Q2:
GRAPH
CONCLUSION
Firm 1’s output is twice as large as firm 2’s
Firm 1’s profit is twice as large as firm 2’s
Bertrand Model
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

P P1

MC

O MC P P2
EDGEWORH MODEL
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.

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

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 P E
R S
S1

T1 T
Q

C1 B1 O
A1 A B C
MICROECONOMIC THEORY - M.L.JHINGAN

BUSINESS ECONOMICS - H.L . AHUJA

INTERNET - WIKIPEDIA