Post on 23-Jun-2015
description
Differences between Monopoly and
Duopoly
ByPrateek Pandey(110101180)Rahul Aggarwal(110101189)
Pankaj Jatav(110101168)Rahul Kumar(120101813)
MONOPOLY
A Monopoly is an industry where there is a single seller of a good without any close substitutes.
Can set its price without any fear of a rival (no rival).Faces the entire market demand directly
Contd..
Studying the basic monopoly case is interesting in its own right.
Example: The United States Postal Service, which is by law the sole provider of first-class mail services, is an example of a monopoly.
Contd..
Standard assumptions of Monopoly:No SubstitutesPrice MakingBarriers to entry
Contd..
Social Costs of Monopoly:
X-inefficiency
Rent Seeking
Contd..
Benefits of Monopoly:
Natural Monopoly
R&D and Patent Policy
DUOPOLY
Two Firms in The Market
Basic form of Oligopoly
Homogeneous or Differentiated Product
The most commonly cited duopoly is that between Visa and Mastercard, who between them control a large proportion of the electronic payment processing market.
Duopoly Models
There are two principal duopoly models:
The Cournot model
The Bertrand model
The Cournot Model
The Cournot model is a model of a two-firm industry (duopoly) in which a series of output-adjustment decisions leads to a final level of output between the output that would prevail if the market were organized competitively and the output that would be set by a monopoly.
The Bertrand model
In this each one of them will assume that the other will not change prices in response to its price cuts. When both firms use this logic, they will reach a Nash Equilibirium.
Barriers to entry
Reputation - A new entrant may suffer just from being new
Strategic barriers - Oligopoly firms often pursue strategies designed to keep out potential competitors
Legal barriers - Patents and copyrights, Govt. legislation
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Differences
On the Basis of Firms:
A monopoly is a firm who is the sole seller of its product, and where there are no close substitutes.
Examples: Microsoft and Windows
A Duopoly contains two firms that cover the whole market
Example- Intel & AMD
Differentiated by Example
In Monopoly:
There is a fixed or setup cost in building the bridge, but the marginal cost of allowing one more car is close to zero. Therefore, average cost falls as quantity of cars increases. Once the bridge is built, the natural monopoly does not fear entrants into the market.
In Duopoly: (Extended Example)
If a second bridge is produced, average costs would nearly double as the two producers split the market. Having just one bridge is more efficient.
On the Basis of Demand Curve
Quantity of Output
(a) A Duopoly Firm’ s Demand Curve (b) A Monopolist’s Demand Curve
0
Price
Quantity of Output0
Price
Demand
On the Basis of Price Discrimination
In Monopoly:
Price discrimination is possible because no other competitor is present in the market.
In Duopoly:
Price discrimination is not possible because one other competitor is present in the market.
Advertising
In Monopoly:
No Advertisement is required.
In Duopoly:
Advertisement is required to attract more customers
On the basis of Graffin Paradox
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In Monopoly:
Most chances of following Graffin Paradox.
Example: Indian Railway,
In Duopoly:
Advertisement is required to attract more customers
On the basis of Collusion
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In Monopoly:
One Firm
In Duopoly:
Logically One Firm
To apply the same method to a simple oligopoly market
Assume that Gus and Filip must make their decisions independently
No matter what Filip does, Gus’s best move is to charge a
low price—his dominant strategy
The same holds for Filip
The outcome is a Nash equilibrium
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On the Basis of Defeating Competitor’s Strategy
In Monopoly:N/A
In Duopoly:Simple Duopoly Game
A Duopoly Game
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Confess
Confess
Don’t Confess
Filip’s Actions
Gus’s profit = $25,000
Filip’sProfit =$25,000
Gus’s profit= –$10,000
Gus’s profit= $75,000
Gus’s profit= $50,000
Filip’sProfit =$–10,000
Filip’sProfit =$75,000
Filip’sProfit =$50,000
Gus’s ActionsDon’t Confess
Summary
Products differentiated –Intel & AMD
Homogeneous-VISA CARD & MASTERCARD
Number of firms
Products differentiated
or homogeneous
Price a decision variable
Free entry
Distinguishedby Examples
Monopoly OneA single,
unique productYes No
Still constrainedby market demand
Public utilityPatented Drug
Duopoly Two Either Yes Limited Strategic behaviorIntel and AMD
in X86 CPU market
Thank You