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Oligopoly

The document discusses a model of duopoly competition between two firms (i=1,2) that set prices (pi) for a homogeneous good. The inverse demand function is P(Y)=a-bY where Y is total output. Each firm's profit is πi=(pi-ci)Di(pi) where ci is the firm's cost and Di is demand. The firms simultaneously choose prices to maximize profits. The Nash equilibrium prices and outputs are derived and shown to depend on costs and demand parameters. Consumer surplus and total welfare are also calculated in terms of prices, costs and demand elasticity at the equilibrium.

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MD ABDUS SATTAR MOIN
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12 views

Oligopoly

The document discusses a model of duopoly competition between two firms (i=1,2) that set prices (pi) for a homogeneous good. The inverse demand function is P(Y)=a-bY where Y is total output. Each firm's profit is πi=(pi-ci)Di(pi) where ci is the firm's cost and Di is demand. The firms simultaneously choose prices to maximize profits. The Nash equilibrium prices and outputs are derived and shown to depend on costs and demand parameters. Consumer surplus and total welfare are also calculated in terms of prices, costs and demand elasticity at the equilibrium.

Uploaded by

MD ABDUS SATTAR MOIN
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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fewfif

• i = 1, 2
• i : yi 2 [0, 1) yi i
•

⇡i (yi , yj ) = P (yi + yj )yi C(yi )


price as a function
(y1⇤ , y2⇤ )

⇡i (yi⇤ , yj⇤ ) ⇡i (yi , yj⇤ )

yi 2 [0, 1) i 6= j i, j = 1, 2
P (Y ) = 120 20Y

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inverse demand P y 120 203
In
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now
88 88
no to

Fiji ftp.iff
120206
df
I 1

P (Y ) = a bY C(yi ) = cyi i = 1, 2
a baa 25
N

P yj
Y i = j6=i i
i

yi = (a bY i c)/2b

y ⇤ = [a b(N 1)y ⇤ c]/2b


a c
y⇤ = b(N +1)
N (a c) a N
Y⇤ = b(N +1) P⇤ = N +1 + N +1 c
N

N
Ci (yi ) = ci yi i

maxyi [a bY i byi ]yi c i yi

a ci by3 i
yi = , i = 1, 2
2b
a+c2 2c1 a+c1 2c2
y1⇤ = 3b , y2⇤ = 3b
N N
i

[a bY ⇤i 2byi⇤ ] ci = 0

P⇤ ci = byi⇤

⇤
P ci bY
= s⇤i ⇤
P P
⇤
P ci ⇤ bY
= si ⇤
P P
P
⌘(P ) = bY (P )

P⇤ c ⇤
⇤
= s i /⌘
P
si

X ⇤
P 2
P ci i si
si =
i
P⇤ ⌘
P 2
i si
• i = 1, 2
• i pi 2 [0, 1)
• i
8
>
<(pi ci )D(pi ) pi < pj
⇡i (pi , pj ) = (pi ci )D(pi )/2 pi = pj
>
:
0 pi >= pj
(p⇤1 , p⇤2 )

⇡i (p⇤i , p⇤j ) ⇡i (pi , p⇤j ) setting


both firm
pi 2 [0, 1) i 6= j i, j = 1, 2
their me a price
p 1 = p2 = c
c1 < c2 < pM (c1 )

p1 = c 2 .01 p2 = c 2
Q = 6000 60P

$10
P = $10 5400
2400

P = $60

QW = 5000 60PW
max⇡Pw = (5000 60PW )(PW 10)

5000 60Pw 60(Pw 10)


@⇡(60)
$60 @Pw = 2800
$60

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