Chapter-18
Application to Economics:
The Duopoly Problem
Group (9) Members
1
Kaung De (4SE-39)
2
Khine Sable Aung (4SE-9)
3
Yee Wint Thaw (4SE-24)
Duopoly Introduction
› Duo  Two
› Polies  Sellers
› Market with Two Sellers
› Simplest Form of Oligopoly
› Have power to control Market
› Super Normal Profits
›
Two Classifications :
(i) One in which there is coordination
(ii) One in which there is no coordination
Collusion OR CARTEL
› Type of duopoly in which duopolists coordinate with each other.
› Turns out to be a kind of monopoly i.e single decisions are made by both duopolists
which create Monopoly in the market. (For eg. Drug Cartle, OPEC, etc.)
› Usually banned by government because govt usually try to avoid this monopoly as
it is harmful for market environment and consumers.
Non Cooperating/ Non Collusion Duopoly
› Duopolists don’t cooperate with each other
› Super Normal Profit
› Both have impact on market
› Strategic Planning
Real
Time
Examples
Of
Duopoly
• Each company's goal is to choose its production level q; so as to maximize
its profit P.
• First way, classical economic approach (nonstrategic)
-Each company starts off producing a fairly small amount, and slowly
ncreases its production as long as the cost of producing additional items
is less
han the price at which items can be sold.
-Each company increases its production to the point where its marginal
cost is
equal to the selling price of the commodity, the efficient point.
p = 92
i
t
• The efficient point solution is naive in that it ignores the fact that the quantities
which both companies produce affect the selling price.
• If a company produced less the price would be higher, and it is possible that this
might yield higher profits:
• Second way, Cournot equilibrium :
p = 106
• The Nash-Cournot equilibrium in this game is not Pareto optimal
• Both companies could do better if they could cooperate
• Third way, Nash arbitrated solution:
- The Nash threat point ,SQ (134, 62)
- The negotiation set is on a line of slope about -3/4
- The Nash arbitrated solution is about (P1,P2) = (173, 91)
p = 114
Same for company 2 so the result