The paper "Duopoly and Monopolistic Competition Market Structures" is a perfect example of a marketing assignment. A duopoly is a form of oligopoly market structure which has two big sellers or producers. It is rarely seen in an idealized form which is a market that has exactly two dominant players. An example that comes close is the worldwide aircraft market which is dominated by Airbus and Boeing (George, 2012). Duopoly is characterized by either differentiated or standardized products, the interdependence of price and difficult entry and exit from the market.
The difficult entry is as a result of economies of scale, the big capital investment may result in barriers of entry. In the event of competition or tacit collusion, duopolies are in the belief that the competitor will match price cuts. However, they will not imitate their price rise. The firms deem their demands to be inelastic in the event of price cuts while they view them as elastic in the event of price rise. The industries portray kinked demand curves. The aforementioned analysis explains that prices are inflexible in various duopolistic industries (George, 2012). There exist two types of duopoly models; Bertrand and Cournot duopoly.
In the Cournot model displays that the two firms ignore each other's output treating it as fixed and as such products according to their finding. Put another way firms compete based on price than based on quantity. In the Bertrand model, the players are of the opinion that the other firm will not change prices as a consequence of its price cuts. In line with the aforementioned logic, the firms will obtain a Nash equilibrium.
Put another way the firms compete with each other on quantity and not based on price (Chang et al, 2013). Although the aforementioned models portray similar assumptions they yield very different implications. Since in the Bertrand model there is an assumption that firms compete based on price and not based on output quantity. The phenomenon predicts that the existence of a duopoly is all that matters to drive prices down to a cost level that is marginal which implies that a duopoly will lead to perfect competition. It is noted that neither model is deemed better.
The prediction accuracy of each model will change from firm to firm, dependent on the nearness of each model's industry situation. If output and capacity can easily be varied then Bertrand comes off as a better duopoly competition model. In the event that capacity and output are not adjusted easily then it follows that Cournot appears to be a better model. The Cournot model is able to be recast as a model that has two stages in which capacities are chosen in the first stage while there is Bertrand fashion competition in the second stage.
It is noted that as firm numbers increase towards infinity then the Cournot model comes off with the same result as that of the Bertrand model; in which market price is forced to the marginal cost level (Chang et al, 2013). In a duopoly, there exists competition which may be referred to as Stackelberg competition. In this competition model, Stackelberg assumed that a single duopoly firm behaved as a Cournot duopolist. In which case it takes the other duopolistic player's output as fixed and it selects its own output on the basis of that assumption.
The firm is referred to as a follower. Stackelberg was of the opinion that the other player anticipated this behavior and maximized its profit on the basis of its rival being a follower. The firm is referred to as a leader.
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