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- 2 Firms
- Simultaneous game
- Identical cost functions
- Homogeneous products in a static setting
- Prices b/w Price (Monpoly & Perfect Competition)
- OUTPUT: Below Perfect Competition But Better than Monopoly
- Cournot duopolies quantity sold SAME
- Price: a – b(Q)
- Q= q1 + q2
- Identical Cost Function
- MC=0 (both Firms)
REATION FUNCTION:
MAXIMUM TOTAL Q:
THEORY: Both firms → vying for maximum benefits → Derived From→ maximum sales volume (a
larger share of the market) and higher prices (higher profitability) → PROBLEM!!! → High
Profitability Through ↑↑ Prices → Damage Revenue→ Low Market Share…
COURNOT MODEL: Maximise both market share and profitability by defining optimum prices
- Price: a – b(Q)
- Q= q1 + q2
- 2 Firms
- SEQUENTIALY game
- Identical cost functions
- Identical Cost Function
- MC=0 (both Firms)
- TWO STAGE (DYNAMIC GAME)
- imperfect competition
NOW FIRM 1 (LEADER) WILL HAVE THIS PROFIT FUNCTION (ALEADY KNOWS FIRM NO: 1
Ref Function)
QUANTITIES SOLD:
Q1( Leader) :
Q2(FOLLOWER):
Industry Output:
Profits:
BERTRAND MODEL
***Bertrand’s equilibrium occurs when NE: (P1=P2=MC), being MC the marginal cost, yielding the
same result as perfect competition.
Industry Profits= 0
Industry Output→ Bertrand Output = Output under PC.
Prices = MC
Identical Output (But not realistic Profits)