The Cournot duopoly model. The Cournot Quantitative Duopoly Model Efficiency of Monopolistic Competition
The simplest oligopolistic situation is when only two competing firms operate on the market. The main feature of duopoly models is that the revenue and profit that a firm will receive depends not only on its decisions, but also on the decisions of a competing firm that is interested in maximizing its profits. The first model of duopoly was proposed by the French economist Cournot in 1838.
Cournot's model analyzes the behavior of a duopolist firm on the assumption that it knows the volume of output that its only competitor has already chosen for itself. The task of the firm is to determine its own size of production. Additional simplifications are made in the model: both duopolists are exactly the same, the marginal costs of both firms are constant (the MC curve runs strictly horizontally).
Suppose that firm 1 knows that the competitor is not going to produce anything. Firm 1 is practically a monopoly. The demand curve for its products (D 0) coincides with the demand curve for the entire industry. Marginal revenue curve MR 0. According to the rule of equality of marginal income and marginal costs MC = MR, firm 1 will set the optimal production volume for itself (50 units). Firm 2 intends to produce 50 units of products. If firm 1 sets the price P 1 for its products, then there will be no demand for it. This price has already been set by firm 2. But if firm 1 sets the price P 2, then the total market demand will be 75 units. Since firm 2 offers 50 units, then the share of firm 1 will remain 25 units. If the price is lowered to P 3, then the market demand for the products of firm 1 will be 50 units. Sorting out different possible price levels, one can obtain different market needs for the products of firm 1, i.e. for the products of firm 1, a new demand curve D 1 and a new marginal income curve MR 1 will form. Using the rule MC = MR, a new optimal production volume can be determined.
Question number 34: "Behavior of the monopolist firm in the short and long term"
A monopoly, as well as a perfectly competitive firm, in the short run may be faced with the task of minimizing losses. A similar situation may arise, in particular, with a sharp decline in demand for its products. Even with the optimal size of its output, the monopolist will receive revenue exceeding direct costs (VC), but insufficient to cover gross costs (TC = FC + VC). By stopping production, he will incur fixed costs (FC). In the absence of revenues, they will amount to the total losses of the monopolist. To minimize the loss, he needs to continue production, covering part of the loss with the difference between revenue and variable costs (margin profit). The larger the gross margin, the smaller the total loss will be. The principle according to which the firm will choose the volume of output is the same - the equality of marginal revenue and marginal costs (MR = MC). 
When the volume of output is Q ’, the equality МR = МС is observed, which means the choice of the optimal size of production and minimization of the inevitable loss. With it, the value of the gross revenue TR will be P ’* Q’ (the area of a rectangle with sides P ’and Q’ in the lower graph and a height equal to TR ’in the upper one).
The value of the average costs for the release of Q 'will be equal to ATC'. Accordingly, the total costs, ATC ’* Q’ (the area of the rectangle with the parties ATC ’and Q’ in the lower graph and the height equal to TC ’in the upper one) will be greater than TR’ revenue. However, this revenue will exceed variable costs (VC) and maximize margins (TR'-VC ').
The difference between the values of ТС ’and TR’ will be the minimum value of the monopolist’s loss in the short term for all possible production volumes.
The monopolist's loss is minimized when the slope of the gross revenue curve () is equal to the slope of gross and variable costs (), which confirms the equality of the values of MR and MC.
In the long run, the monopolist firm that previously minimized its losses will leave the industry as economically ineffective. This is a relatively rare case. As a rule, a monopoly, which receives economic profit in the short run, preserves it in the long run, optimizing output based on the equality of marginal revenue and long-run marginal costs. 
The model of maximizing the profit of a monopolist in the long run is similar to the model of his behavior in the short run. The only difference is that all resources and costs are variable, and the monopolist can optimize the use of all factors of production, taking into account the economies of scale. Equality MR = MC as a condition for choosing the optimal size of production takes the form MR = LMC.
Duopoly (from Latin duo - two and Greek pōlēs - seller)
a term used in bourgeois political economy to denote the market structure of a branch of the economy in developed capitalist countries, in which there are only two suppliers of a certain commodity and between them there are no monopolistic agreements on prices, sales markets, production quotas, etc. The concept of D. reflects various forms of market organization. The first form is a market dominated by two large commercial and industrial companies, between which there is a secret agreement that ensures maximum profit through unequal exchange. This situation is typical of the early 20th century. The second form is the market for modern industries of mass production, which is also dominated by two companies. There is usually a tacit agreement on monopoly prices and non-price competition between them. The third form is a market in which there are two suppliers, but there are no monopolistic agreements between them. This is possible in two situations: either as a temporary state of the market in the initial period of production of a new product and a “test of strength” of two suppliers, or as a state of fierce competition in the transition from simpler to more developed forms of monopoly. This form is used by some bourgeois economists for apologetic purposes to prove the possibility of a permanent absence of monopoly in a highly concentrated production environment. The majority of modern bourgeois economists consider dialectic a kind of monopoly (which is true). The economic and mathematical study of dialecticism began as early as the 19th century. A. Cournot, J. Bertrand (France) and F. Edgeworth (Great Britain). In the 30s. 20th century G. Stackelberg (Germany) gave a description of certain types of dialectics, which depend on the behavior of duopolists. The modern theory of dialectics developed under the influence of the theories of monopolistic competition by E. Chamberlin (USA), imperfect competition by J. Robinson (Great Britain), the works of R. Triffin (USA) and began to take into account the more complex nature of real market conditions (interdependence between industries, shifts in supply and in assets, differences in the types of money and market institutions, the level of information about the market, etc.). Lit .: E. H. Chamberlin, The Theory of Monopolistic Competition, trans. from English, M., 1959; Zhams E., History of Economic Thought of the 20th Century, trans. from French., M., 1959; Seligmen B., The main currents of modern economic thought, trans. from English., M., 1968; Neumann J., Morgenstern O., The theory of games and economic behavior, Princeton, 1944. Yu.A. Vasilchuk.
Great Soviet Encyclopedia. - M .: Soviet encyclopedia. 1969-1978 .
See what "Duopoly" is in other dictionaries:
- (doupoly) A market in which there are only two manufacturers or sellers of a given product or service and many buyers. In practice, the profits that can be obtained as a result of this form of imperfect competition are usually less than those ... Business glossary
A type of industry market where there are only two sellers and many buyers. It is believed that the profits that can be obtained as a result of such imperfect competition are less than the profits that would be obtained if two ... ... Financial vocabulary
- (duopoly) A market in which there are only two sellers, each of which must take into account the possible retaliatory actions of the other. In the Cournot duopoly, each seller assumes that the competitor will maintain the same volume ... ... Economic Dictionary
- (from Latin: two and Greek: I sell) a situation in which there are only two sellers of a certain product, not related to each other by a monopolistic agreement on prices, sales markets, quotas, etc. This situation was theoretically ... ... Wikipedia
duopoly- The situation on the market, where there are only two manufacturers offering one product. [RAO UES of Russia STO 17330282.27.010.001 2008] duopoly A market mechanism in which two sellers of one product operate (this one is rather abstract ... Technical translator's guide
- (from Lat. duo two and Greek poleo I sell) an economic term that denotes the structure of the economy, in which there are only two suppliers of a certain product, not related to each other by a monopolistic agreement on prices, sales markets, quotas, etc. Big Encyclopedic Dictionary
Duopoly- a market mechanism in which two sellers of one product operate (this rather abstract case is often used, due to its clarity, when modeling market processes). D.'s analysis, bearing the name of O. Cournot and proposed by him in ... ... Economics and Mathematics Dictionary
duopoly- Exclusive control of the supply of products to a specific market and service by two suppliers who dominate this market and thereby determine the prices and scope of supply ... Geography Dictionary
Duopoly- (from Lat. duo two + gr. poleo I sell; English duopoly) a situation in which there are two manufacturers on the product market offering identical products (goods) ... Encyclopedia of Law
AND; f. [from lat. duo two] Econ. A market dominated by two sellers of a certain product or service that are not linked by agreements on prices, sales markets, etc. * * * duopoly (from Latin duo two and Greek pōléō I sell), an economic term, ... ... encyclopedic Dictionary
DUOPOLY- (from Latin: two and Greek: I sell) a situation in which there are only two sellers of a certain product, not linked by a monopoly agreement on prices, sales markets, quotas, etc. This situation was theoretically ... ... Big Dictionary of Economics
Books
- Microeconomics for the Advanced. Problems and solutions, A. P. Kireev, P. A. Kireev. The collection contains tasks for the main sections of microeconomics: consumer theory, producer theory, market theory (free competition, monopoly), general economic equilibrium, ...
Send your good work in the knowledge base is simple. Use the form below
Students, graduate students, young scientists who use the knowledge base in their studies and work will be very grateful to you.
Posted on http://www.allbest.ru/
ESSAY
FIRM CONDUCT IN DUOPOLY CONDITIONS
Duopoly (from Latin: two and Greek: I sell) is a situation in which there are only two sellers of a certain product, not related to each other by a monopoly agreement on prices, sales markets, quotas, etc. This situation was theoretically considered A. Cournot in the work "Investigation of the mathematical principles of the theory of wealth" (1838). Cournot's theory is based on competition and is based on the fact that buyers announce prices and sellers adjust their output to these prices. Each duopolist estimates the demand function for the product and then sets the quantity to be sold, assuming the competitor's output remains constant. According to Cournot, in terms of output, the duopoly occupies an intermediate position between full monopoly and free competition: compared with a monopoly, output here is somewhat higher, and compared with pure competition - less.
Initial conditions and the main task of the model
There are two similar firms operating on the market (a duopoly situation), each of which owns a mineral water source that it can develop at the same cost. For simplicity, they are taken equal to zero. The companies sell mineral water on the market. Market demand is known and has the form of a linear function:
Aggregate production of two firms:
Firm behavior in a duopoly environment. Cournot model
Each firm seeks to maximize profits, proceeding from the invariability of the volume of output of the competitor, regardless of what volume it chooses (in other words, the volume of output of the competitor is taken as a given value). For example, if firm 1 assumes that the possible output of firm 2 is zero (i.e., it is the only producer and the demand for its products coincides with market demand), then it produces one volume at the optimum point. If the possible output of firm 2 is greater, then firm 1 will adjust its output based on the residual demand (market demand minus the demand for the products of firm 2), i.e. will produce slightly less at the optimum point. Finally, if firm 1 believes that its competitor covers 100% of the market demand, its optimal output will be zero.
Thus, the optimal output of firm 1 will change depending on how, in its opinion, the output of firm 2 will grow.
The main task of the model is to determine at what volume of output both firms reach equilibrium.
The simplest oligopolistic situation is when only two competing firms operate on the market. The main feature of duopoly models is that the revenue and profit that a firm will receive depends not only on its decisions, but also on the decisions of a competing firm that is interested in maximizing its profits. The first model of duopoly was proposed by the French economist Cournot in 1838.
Cournot's model analyzes the behavior of a duopolist firm on the assumption that it knows the volume of output that its only competitor has already chosen for itself. The task of the firm is to determine its own size of production. Additional simplifications are made in the model: both duopolists are exactly the same, the marginal costs of both firms are constant (the MC curve runs strictly horizontally). duopoly seller commodity equilibrium
The simplest oligopolistic situation is when only two competing firms operate on the market.
The main feature of duopoly models is that the revenue and profit that a firm will receive depends not only on its decisions, but also on the decisions of a competing firm that is interested in maximizing its profits. The first model of duopoly was proposed by the French economist Cournot in 1838.
Cournot's model analyzes the behavior of a duopolist firm on the assumption that it knows the volume of output that its only competitor has already chosen for itself. The task of the firm is to determine its own size of production. Additional simplifications are made in the model: both duopolists are exactly the same, the marginal costs of both firms are constant (the MC curve runs strictly horizontally).
Suppose that firm 1 knows that the competitor is not going to produce anything. Firm 1 is practically a monopoly. The demand curve for its products (D0) coincides with the demand curve for the entire industry. Marginal revenue curve MR0. According to the rule of equality of marginal income and marginal costs MC = MR, firm 1 will set the optimal production volume for itself (50 units). Firm 2 intends to produce 50 units of products. If firm 1 sets the price P1 for its products, then there will be no demand for it. This price has already been set by firm 2. But if firm 1 sets the price P2, then the total market demand will be 75 units. Since firm 2 offers 50 units, then the share of firm 1 will remain 25 units. If the price is lowered to P3, then the market demand for the products of firm 1 will be 50 units. Sorting out different possible price levels, one can obtain different market needs for the products of firm 1, i.e. for the products of firm 1, a new demand curve D1 and a new marginal income curve MR1 will form. Using the rule MC = MR, a new optimal production volume can be determined
Bibliography
1. Blaug M. Theory of duopoly // Economic thought in retrospect = Economic Theory in Retrospect. - M .: Delo, 1994 .-- S. 296-297. - XVII, 627 p. - ISBN 5-86461-151-4
2. Duopoly / Vasilchuk Y. A. // Debtor - Eucalyptus. - M.: Soviet encyclopedia, 1972. - (Great Soviet encyclopedia: [in 30 volumes] / chief editor A.M. Prokhorov; 1969-1978, vol. 8)
Posted on Allbest.ru
Similar documents
The theory of public spending P.A. Samuelson: essence and content, principles and directions of their practical application at the present stage. Oligopoly as a market situation in which several large firms dominate an industry, the concept of a duopoly.
test, added 08/15/2013
Characteristics of the main models of the economy. Equilibrium position of a competitive firm. Methods of non-price competition (methods of product differentiation). Types of oligopolistic associations. Imperfect Competition Markets: Monopsony, Bilateral Monopoly, Duopoly.
presentation added on 04/23/2014
Types of uncooperative behavioral strategies. Cournot duopoly equilibrium. Bertrand's paradox. The interval of price fluctuations according to the Edgewart model. Impact of power limitations on price fluctuations during a war. Equilibrium issues of duopolists according to Stackelberg.
presentation added on 04/15/2012
Study of the main pricing models in the conditions of cooperative and non-cooperative oligopoly. Cartel model, price leadership. Duopoly model and Stackelberg model, broken demand curve. Efficiency and examples of oligopoly in the modern Russian Federation.
term paper added on 05/08/2015
Methods for determining market equilibrium: graphical, tabular and analytical. Essence and description of the price mechanism. Methods for calculating the deficit and surplus of goods. Market equilibrium as a market situation in which the volume of demand is equal to the volume of supply.
presentation added 11/17/2013
Features of determining the level of GDP and national income in the framework of the classical general equilibrium model. Distribution of income between employees and owners of firms. Product purchase volume. Tools for achieving general economic equilibrium.
report added 03/25/2012
Research of oligopoly as a market model. Struggle for market power and basic models of oligopolistic pricing. Leadership in prices. Study of the problems of mergers of firms-oligopolists. Game theory. Equilibrium in the oligopoly market. Cournot duopoly model.
term paper added 12/25/2015
The essence of monopoly, the history of their origin, forms and types, profit maximization. Sources of monopoly power. Interaction between firms. The monopoly makes a decision on the volume of output and the price of goods. State policy in relation to monopolies.
term paper, added 03/01/2002
Essence, theoretical foundations and conditions for the emergence of a market of perfect competition. The behavior of the firm under these conditions. Market structure models and conditions for maximizing the profit of a competitive firm. Equilibrium of the firm in the short and long run.
term paper, added 02/10/2009
Equilibrium of the firm in the short run. Classification of firms in a short-term equilibrium. The position of a competitive firm in the market. Maximizing sales revenue. Determination of the marginal rate of substitution of capital for labor. The rule of profit and cost.
It is better to understand the patterns of a firm's behavior in an oligopolistic market by analyzing a duopoly, i.e. the simplest oligopolistic situation, when only two competing firms operate on the market. The main feature of duopoly models is that the revenue and, therefore, the profit that the firm will receive depends not only on its decisions, but also on the decisions of the competing firm, which is also interested in maximizing its profits. The decision-making process in a duopolistic market resembles a home analysis of a pending chess game, in which the player looks for the strongest answers to his opponent's possible moves.
There are many models of oligopoly, and none of them can be considered universal. Nevertheless, they explain the general logic of the behavior of firms in this market. The first and still actual model of duopoly was proposed by the French economist Augustin Cournot in 1838 in his book "A Study of the Mathematical Principles of the Theory of Wealth."
Cournot's model allows one to analyze the behavior of a duopolist firm on the assumption that it knows the volume of output that its only competitor has already chosen for itself. The task of the firm is to determine the size of its own production, in accordance with the competitor's decision as a given.
The figure shows what the firm's command would be in such an environment. To keep the graph simple, we made two additional simplifications. First, it was accepted that both duopolists are exactly the same, no different firms. Second, it was assumed that the marginal costs of both firms are constant: the MC curve runs strictly horizontally. The latter assumption, as shown in the chapter on costs, is not so unrealistic. Rather, it can be said to constrain the analysis to the normal level of capacity utilization. That is, on the MC curve, only the middle part is considered, which lies near the technological optimum and really looks like a horizontally straight line.
The analysis of the behavior of the duopolist in Cournot's model was stepwise. First, let one of the oligopolists (firm # 1) know for sure that the second competitor does not plan to manufacture products at all. In this case, firm No. 1 will actually become a monopoly. The demand curve for her products (D 0 ) will match the demand curve of the entire industry. Accordingly, the marginal income curve will take a certain position (Mr 0 ). Using the usual rule of equality of marginal revenue and marginal cost MC = Mr, firm No. 1 will set the optimal production volume for itself (in the case shown on the graph - 50 units) and the level of yen (R 1 ).
Well, what will happen if the next time Firm No. 1 becomes aware that its competitor intends to produce 50 units. products at a price of P 1? At first glance, it may to seem that by doing so it will exhaust the entire volume of demand and force firm No. 1 to abandon production. Having carefully examined the graph, we, however, will be convinced that this is not the case. If firm # 1 also sets a price R 1 , then there really will be no demand for its products: those 50 units that the market is ready to accept at this price have already been supplied by firm # 2. But if firm No. 1 sets a lower price P2, then the total market demand will increase (in our example, it will be 75 units - see the demand curve of the industry D 0). Since firm No. 2 offers only 50 units, then the share of firm No. 1 will remain 25 units. (75 - 50 = 25). If the price drops to R 3 then, repeating similar reasoning, we can establish that the market demand for the products of firm No. 1 will be 50 units. (100 - 50 = 50).
It is easy to understand that by going through different possible price levels, we will also receive different levels of market demand for the products of firm No. 1. In other words, a new demand curve will form for the products of firm No. 1 (in our chart - D 1) and, accordingly, a new curve income ( Mr 1 )> Using the rule again MS =Mr, it is possible to determine the new optimal volume of production (in our case it will be 25 units - see Fig. 9.2).
Already at this stage of the analysis, the Cournot model allows us to draw important economic conclusions.
1. Under an oligopoly, the volume of arbitrariness is greater than the level that would have been established under a pure monopoly, but less than it would have been under perfect competition:
Q m A smaller production output under oligopoly than under perfect competition does not actually require proof: this is the case in any market of imperfect competition. So, in our example, the oligopolists will release 75 units. products. And with perfect competition, the output would be larger. Recall that with perfect competition, the demand and marginal revenue curves coincide (D
=
Mr),
therefore, the equilibrium point according to the rule MC
=
Mr should be established at the intersection of curves D and MC, which, as seen in the graph, will cause the release of 100 units. But the fact that the oligopolistic output will exceed the monopoly is also understandable. Indeed, to the volume of production that the monopolist would have limited output (50 units), the output of the second manufacturer (25 units) was also added. 2.Prices under oligopoly are lower than monopolistic ones, olnako are higher than competitive ones: R m > P olig >
P c
(9-2) The economic mechanism leading to the establishment of the described level of yen is also clear. By limiting production and overstating the yen, the monopoly leaves part of the market demand unmet. This remainder serves as a sales market for the second duopolist (as well as the third, fourth and further competitors if we move from a duopolistic model to a multi-firm oligopoly), allowing him to release additional products, if, of course, he reduces the yen below the monopoly level (on the chart - from P 1 to R 2
).
At the same time, his yen will be above the competitive price level (P 3). the total profits of both duopolis will be below the profits that a single firm would have received in the same market * monopolist. P m > n olig >0
(9-3) Again, we will refrain from commenting on the general tendency of imperfectly competitive markets to generate economic profits. The fact that their level is lower than that of monopolies is easiest to prove from the opposite As you know, the rule MC = MR ensures the maximization of profits. At the very beginning of the analysis of the Cournot model, we made sure that if only one monopoly firm were operating on the market (a situation in which it is known about the second duopolist that he does not plan to release products is actually tantamount to a monopoly), it, being guided by this rule, would establish a certain volume production and price level. For any other volume of output (and price level), the profit will be less. But the intervention of the second duopolist, the beginning of production by this second firm, just lead to the deviation of production volumes and prices from the optimum. Consequently, the total profit of the two duopolists will not be as great as that which a pure MONOPOLIST would be able to obtain The general conclusion, which is also of great practical importance for the manager, is obvious and general: under an oligopoly, there is not one, but many demand curves for the firm's products, namely, each level of output of one of the oligopolists corresponds to a special demand curve for the products of the other oligopolists. Let us recall how the events developed in the model: knowing that the second firm does not plan production, the first one behaved like a monopolist and had a demand curve D 0. As soon as the company number 2 changed its mind and released 50 units. products, a new demand curve has developed for firm No. 1. Obviously, the reasoning that we carried out in relation to the release of the second company 0 and 50 units. products, can be repeated in relation to the most different levels of production of this company. Each new choice of a given firm will generate a new demand curve for its competitor's products. The graph, in particular, shows the demand curve for the products of firm No. 1 (see D 2), which will arise when the firm No.
2
exactly 75 units. products. In this case, the optimal volume of production for the company No. 1 itself will be 12.5 units. products (intersection
Mr 2
and MO. In other words, for any oligopolist, the market volume is not a constant value, but directly depends on the decisions of competitors. To better understand all the consequences of this pattern, let's turn to the figure. Let's pay attention to the unusual axes used on it. Horizontally, the size of the production of one firm is plotted, vertically - another. In such axes, the size of the output of firm No. 1 can be depicted as a response curve on the volume of production of firm No.
2.
Similarly, the output of firm No. 2 can be represented as a function of the volume of production of firm No. 1: Q (1) = f
Q(2),
Q(2)
= ф Q (1) where Q (1) is the size of the production of firm No. 1; Q (2) is the size of the production of firm No. 2. With this formulation of the problem, we are actually trying to understand what will result from the simultaneous efforts of two firms to adjust their output to the output of another firm. Let's see if both firms can establish mutually acceptable production volumes. We took all the data for the graph from the previous example. So, if it is known about firm No. 2 that it is going to release 75 units. products, then the firm number 1 will decide on the release of 12.5 units. (dot A). But if the firm number 1 really produces 12.5 units. products, then, as can be seen on the graph, firm No. 2, in accordance with its reaction curve, should release not 75, but 42.5 units. (dot V). But such a level of output by a competitor will force firm No. 1 to produce not 12.5 units, as it was going to, but 29 units. products (point O, etc. It is easy to see that the level of production that the firm sets on the basis of the existing size of the competitor's production each time turns out to be such that it forces the latter to reconsider this level. This causes a new adjustment in the volume of production of firm No. 1, which in turn again changes the plans of firm No. 2. That is, the situation is unstable, non-equilibrium. However, there is also a point of stable equilibrium - this is the point of intersection of the response curves of both firms (on the graph - the point O). In our example, firm number 1 produces 33.3 units. based on the fact that the competitor will release the same amount. And for the latter, the issue is 33.3 units. really is optimal. Each of the firms produces a volume of products that maximizes its profits for a given volume of production of a competitor. It is not profitable for any of the firms to change the volume of production, therefore, the equilibrium is stable. In theory, it was called the Cournot equilibrium. Under Cournot equilibrium
we mean such a combination of the output volumes of each firm, in which none of them have incentives to change their decision: the profit of each firm is maximal provided that the competitor maintains a given output volume. or in other words, at the Cournot equilibrium point, the expected by competitors of the output of any of the firms coincides with the actual and at the same time is optimal. The existence of the Cournot equilibrium indicates that oligopoly as a type of market can be stable, that it does not necessarily lead to a series of continuous, painful redistribution of the market by oligopolists. The mathematical theory of games, however, shows that the Cournot equilibrium is achieved under some assumptions about the logic of the behavior of duopolists, but not under others. In this case, the clarity (predictability) of the actions of the competing partner and his readiness for cooperative behavior in relation to the rival are of decisive importance for achieving equilibrium. Maybe you this morning Maurice Chaklayes Pure competition and pure monopoly are ideal forms. They help to understand the essence of the structure of diverse market relations, but in their extreme (absolute) forms they almost never occur in real life. This chapter examines monopolistic competition, a market structure that we encounter on a daily basis. The term and model of monopolistic competition was introduced into scientific circulation in 1933 by E. Chamberlin. In a broad sense, all types of market structure (including the oligopoly, which will be discussed in Chapter 11), located between pure monopoly and pure competition, can be interpreted as monopoly competition. And the very name “monopoly competition” was given because it contains elements of both of the aforementioned ideal market structures. Monopolycompetition is a market structure in which multiple firms sell a heterogeneous product in the same market. According to Chamberlin, a monopolistically competitive industry consists of many vendors offering a set of products that are close substitutes. Each seller seeks to maximize profits by modifying the quality of their product and the quantity offered for sale. Though product differentiation practically difficult to measure, it is generally accepted that it is in it that the essence of monopolistic competition lies. Changing every moment Consider monopolistic competition as one of the four main market structures based on a set of structural variables already known to us, presented in chapters 7-9 (Table 10.1). Table 10.1 The essence of a production group offering close substitutes can be determined by examining how production solutions a separate manufacturers influence behavior others manufacturers of the "industrial group". Industrialgroup- this is a large number of product manufacturers who are quite successful, although not fully, can substitute for each other. Each firm in a situation of monopolistic competition is similar to the others, i.e., representative. Chamberlin's hypothesis regarding the nature of monopolistic competition rests on the conditions uniformity and symmetry. one Uniformity condition is that the supply and demand curves of each producer in the group are identical. With regard to the production of beer, for example, this assumption suggests that the costs of producing a bottle of Baltika beer, in fact, do not differ from the production of Stepan Razin, and the demand conditions are practically the same. Conditionuniformity (uniformity):
Chamberlin's idea that the cost and demand curves of each member of an industry or group are identical. Both beers have their own niche in the market and have more or less loyal followers. At the same time, the consumers of Baltika and Stepan Razin do not have any fundamentally different characteristics. In a competitive market, no manufacturer has a monopoly on the "best product." If a new brand emerges that is more popular than others, other manufacturers can modify the characteristics of their products, copying the best features of the most popular, and at the same time not imitating it 100%. An equilibrium system is formed by a whole range of goods, the characteristics of which are somewhat differentiated, and these goods are liked or disliked in different ways by different consumers. Symmetry condition means that the action of one manufacturer (in the form of a change in the price of his product) affects all other members of the group. Conditionsymmetry:
Chamberlin's idea that the action of one producer forces the other members of a monopolistically competitive group to respond in some way. Figuratively speaking, the Chamberlin firm can be compared to one of many fishing boats with several fishermen with fishing rods. If one fisherman finds a bait more tempting for fish, then his share in the total catch will increase noticeably. But since the situation is symmetrical, other fishermen can follow his example. But if everyone starts to use the best bait, then the bait of the first fisherman will cease to be especially attractive for fish and its share in the total catch will again decrease. The juice of mutual friendship, forgiveness of grievances Translated by Adrian Piotrovsky The essence of monopolistic competition is manifested in the framework of four parameters: (1) product differentiation; (2) uniformity; (3) symmetry; and (4) a relatively large number of manufacturers. The peculiarity of the market of monopolistic competition is that each firm faces two different demand curves: DD
and dd
(fig.10.1). d(ceteris paribus) I D(mutatis mut andis) 0 35 40 Qo = 45 50 55 Rice. 10.1
... Two demand curves in monopolistic competition LinedemandDD
(mutatismutandis) 1
demonstrates a situation in which all firms uniformly
change prices for their products. At the same high prices, each representative manufacturer controls a relatively small and equal market share. The simultaneous reduction in prices by all sellers leads to the fact that each firm increases its sales by an equal amount. For example, at the point A each manufacturer will receive a price of 0.6 rubles. per unit of goods and will sell 45 units; at the point V each firm pays 0.5 rubles. per unit of goods and will sell 50 units. Curve DD
similar to the demand line industries a purely competitive model and differs only in that it shows the share of each individual manufacturer in aggregate market demand. For example, point V for 100 manufacturers corresponds to a market volume of 5000 units. Linedemanddd
(ceterisparibus)
demonstrates a situation in which only one
the firm changes the price (the prices of other firms are fixed). An individual manufacturer will not charge the same price as his competitors if he thinks that there is other the price can bring him a higher profit. If the manufacturer thinks that other firms will continue to adhere to the already existing price (say, 0.6 rubles per piece), then he, having set the price 0.6 rubles. per piece, will sell 45 pieces. However, the manufacturer can set both a higher and a lower price (say, 0.7 or 0.5 rubles per piece), and sell either 35 units, respectively. (dot A"), or 55 units. (dot A") goods. Curvedd
more elastic than a curveDD
.
It is more sensitive to price changes provided that other members of the group do not change their prices. Reducing the individual price from 0.6 to 0.5 rubles. per piece of goods provides not only additional 5 units. sales in the same way as other members of the group (as shown by the curve DD),
but on top of that, an additional 5 units, which our producer will receive from the losses of the rest of the group members. Higher than P 0, price, line dd
lies to the left, and at a price lower than P 0 - to the right of the demand line DD.
This is because if the price of our firm rises, competitors are likely to keep their prices at the same level, and if the price of one firm goes down, other firms will be forced to follow this example so as not to lose their customers. Short-term balance. Suppose that the initial equilibrium of the production group is determined by the point A 0 in Fig. 10.2, a at the total price P Q
and release q0
... Separate manufacturer acting on the demand line dd0
,
with an appropriate marginal income (mr Q) is able to increase its own profit, lowering the price of its products to the level P t
and producing q
"
units of output (at tg "ts). This corresponds to a new equilibrium point A". But if the example of one manufacturers follow other and will also reduce the price of their products to the level R, then the equilibrium of the system will move along the curve DD
to point AND j. Curve dd
will begin to shift down and to the left, as prices of goods of substitutes(which are suggested by all other members of the group) also dropped. Each member will get a new demand line dd,
passing through point L, and will revise the conditions for making a profit in an appropriate way. The process will continue until the group reaches the position shown in Fig. 10.2, b. Point E there is a uniform price for the whole group R*, and each member sells q
*
units of production. Rice. 10.2. Equilibrium in the short run Once this position is reached, each manufacturer receives a demand line dd*
and is not inclined to change either the price of its products or the volume of output. On the one hand, this short-run equilibrium of monopoly competition resembles the equilibrium model under monopoly conditions, in which the firm's demand curve has a downward slope, and tg<Р,а
price exceeds marginal cost. However, on the other hand, the situation also resembles the equilibrium of pure competition at the market equilibrium price (R*), over which the individual manufacturer has no control. The only difference from pure competition is that the firm's demand curve is not perfectly elastic. Long-term balance. In the short run, a representative firm can receive a certain economic profit (mc> 0) if the price exceeds the total average costs (P> ATC) at equilibrium output q*.
However, since the market is competitive, economic gains (or losses) cannot exist in long term period. This is because, as in a purely competitive industry, in monopolistic competition, the existence of economic gains or losses creates incentives for new firms to enter the industry or to leave the industry for some of those already present in it - entry and exit of firms in this model are practically unlimited. As a new firm enters the industry, the representative firm's market share decreases, resulting in a corresponding shift to the left of the lines DD
and dd.
The individual firm is forced to cut prices, which further shifts the curve down dd.
The process continues until the curve dd
will not reach the total average cost curve A TS(dot E in fig. 10.3), in which the economic profit is zero (mc = 0). Representative firm maximizes its profit with tg = mc, but the position of the curve dd
is such that this maximization is carried out at mc = 0 (zero economic profit). Rice. 10.3. Long-term balance For clarity, let us compare the equilibrium of a competitive firm in the short and long run on the same graph (Figure 10.4). In fig. 10.4, a depicts the situation short-term equilibrium of a monopolistically competitive firm. Since the firm is the only manufacturer of its brand of goods and deals with a decreasing demand curve, the final price of the short term (P SR)
exceeds average costs (ATC) and the firm makes a positive profit (shaded rectangle). However, these profits attract new manufacturers with competing brands to the industry. As a result, the firm's market share shrinks and its demand curve shifts downward. Therefore, in equilibrium in the long run (Fig. 10.4, b) the price is equal to the average cost, and each firm receives zero economic profit, despite the fact that it has monopoly power. Rice. 10.4. Equilibrium of a monopolistically competitive firm in the periods: a) short-term and b) long-term This situation differs from the pure competition model in two respects. Firstly, in accordance with the condition of profit maximization, the price exceeds the marginal cost (P> MC). Secondly, tangency cannot be at the point of minimum Л ГС, that is, at the point M in Figure 10.3. There is no limit to the greedy aspiration ... There is no outcome to unsuccessful labor ... There is no end and path to the joyless ... God, be merciful to me, a sinner ... Based on the study of long-term equilibrium, it can be concluded that the optimality condition characteristic of the model of pure competition is violated under monopolistic competition. This is explained by the following considerations. Firstly, since the price exceeds the marginal cost (P> MC), welfare losses (shaded area in Figure 10.3) are similar to the pure monopoly model; Secondly, the zero profit condition leads to excess capacity, that is, each firm operates below the minimum value ATC. Excessivepower:
a condition characterizing a long-term equilibrium in conditions of monopolistic competition, in which a firm operates at a volume of output less than optimal, at which a minimum of total average costs could be achieved. The existence of excess capacity implies that the cost of producing a unit of a good under monopolistic competition is higher than if the product were homogeneous. Does overcapacity mean the “inefficiency” of the monopolistic competition model? On the one hand, monopolistic competition leads to economic losses: a certain total volume of output can be provided at lower costs. Welfare losses that result from prices exceeding marginal cost are not easy to identify. Despite the loss of dead weight (the shaded triangle in Figure 10.3), Chamberlin expresses his belief that monopoly competition is a better market structure than pure competition. The presence of excess capacity or loss of efficiency is a kind of payment that consumers pay for differentiation goods and for that availability sources of supply that are provided by monopolistic competition. Suppose now that the producer has increased his output by one unit above the equilibrium value (Figure 10.5). Curve dd
will move down: the output of all other producers has increased, and prices have decreased. Thus, more closely related substitute goods became available to buyers at lower prices. This decline in price can be measured using the shaded area. L.
Rice. 10.5. Welfare effects from increased output when P *> mc The result of a price reduction consists of two opposite effects: a positive effect, or a welfare gain (denoted by the letter G), and a negative effect, or a loss of welfare (denoted by the letter L).
Based on this, we conclude that an increase in output is economically justified, but if G
>
L,
that is, to the point at which G
= L.
If this criterion is valid, then the effective price must always exceed the marginal cost and monopolistic competition cannot be compatible with economic efficiency under conditions of pure competition. Section 10.5 presents an algebraic example in which the equilibrium condition for monopolistic competition is considered in more detail. The market is full of paintings A. A. Voznesensky The monopolistic competition model does not consider how producers differentiate their products. However, many product differences can be quantified. Although the products are diverse, most of their basic characteristics are quite comparable. Thus, the total price of a product can be broken down into several components: one price for each feature. A firm may try to improve its position by implementing product differentiation - adding or highlighting new qualities of the product and charging a higher price for its product. This concept was first proposed by Lester Tesler, 1 and her ideas in relation to the model of monopolistic competition - by Calvin Lancaster. 2 The Lancaster model has already been discussed in Chapter 4 (Section 4.10). The construction of the model assumes that the consumer derives utility from characteristics rather than from the goods themselves, and is able to buy the most preferred set of characteristics by combining goods and services in a certain way. The Lancaster model is shown in Fig. 10.6. Let's pretend that Z%
and Z 2 along the ordinate and abscissa axes represent two characteristics of the quality of products of a monopolistically competitive group. Thus, the product of each company forms attributive combination and is located on a separate ray emanating from the origin: for example, four different products correspond to points A, B, C andD.
The graph illustrates a set of preferences: a customer will purchase a single product only if his indifference curve (, because q°
is taken on a regular basis; the slope of this curve is B Curve DD
intersects the ordinate at the point A and has a slope - [(P 1) a + b], because q
= q° =
Q/
n
(where Q
-
release of the whole group). Let the parameter values be: A = 200, a = 0,01, n = 101, b
=
1. Then the equations of demand curves can be expressed as follows: 2 Q DD:
p = 200 2
q
200 - dd: p =q.
Equilibrium condition.Curve positionDD
in the short run, it is fixed: there is no branch entry or exit. Moving along a curve DD
assumes the impact of 2 effects on the product price of a representative firm: the output of the firm itself (B= 1) and the release of its competitors [(PI) a= Curve positiondd
is changing with the group's output volume: Increase group output shifts the demand curve of each group member downward. Rice. 10.7. Algebraic illustration of short-term equilibrium Curve position tg depends on the curve dd,
which means - from q°.
In this case, the angle of inclination tg twice the angle of inclination dd.
In our example: tg = 2q.
Let the curve mf expressed in linear form, for example: tf = 25 + 0.5q.
Each manufacturer maximizes its profit (tg= tc), and the release for all members of the group is the same (q =
q°).
Let's equate mf and tg. 25 + 0,53
q.
We get: q* =
50. So, the equilibrium of the system is carried out at q*
50 ir *= = 100, as shown in Fig. 10.7. At q°
= q*
= 50 curve dd
a representative firm looks like: R= 150 q,
and the curve tg= 150 2
q.
At tg= mf we have: 150 2
q*
= 25 + 0,5<7*, или q*
50. Price /? * = 100 corresponds to the intersection of the curves DD
(R= 200 2
q) anddd(p =
= 1509). The short-term curve obtained in this way is, moreover, the equilibrium curve for the long-term period, if the fixed costs are equal to 3125 den. units Since the curve mf is linear (mc= 25 + 0,5
q),
corresponding curves avc
and ate
can be represented as follows: avc
= 25 + 0.25 g, ate
= + 25 + 0,25<7. If q
= 50, ate
= 100 = p.
Economic surplus and efficiency. In fig. 10.5 The welfare effects of increased output were measured using figures Ghl.
Wherein G
represented the "gain" from the expansion of the output, and L
-
corresponding welfare “losses” caused by downward shift of the curves dd.
Within the linear model used above, G
and L
can be represented as follows: G = (R
mf) dq = (p mr) dq= (bq) dq. L
= [(n
1) aq]
dq.
The equilibrium volume of output is effective if G ~
L,
if B= (n \) a. This condition is attained at b
= 1, i = 101 and a = 0.01. The ferret married a rat, Duopoly: Price Leadership Oligopoly is a market structure in which a small number of sellers are opposed by many buyers. Perhaps few problems in microeconomic theory cause as much discussion and controversy as oligopoly. In real life, typically monopolistic industries are automotive, metallurgy, aluminum, chemical, etc. The fundamental difference between oligopoly and monopolistic and pure competition is that with oligopoly in the industry there is only several rivals, and therefore each firm is obliged to take into account the reaction of other participants to their actions. The actions of any oligopolist in the industry have a direct impact on each of the rivals, i.e. firms in the industry are interdependent. Consider oligopoly as one of the four main market structures based on the structural variables outlined in the four previous chapters (Table 11.1). We already know that in the model of perfect competition, products are homogeneous, but in monopolistic competition they are heterogeneous (differentiated). In the oligopolistic model, products can be either homogeneous or heterogeneous. table11.1
Opportunities for entry into the industry also vary widely - from completely blocked entry to fairly free (depending on the characteristics of the strategic behavior of oligopolists). In a perfect competition model Firms pursue optimal behavior policies: when the market is in equilibrium, they have no reason to change the price or the volume of output. When supply and demand are equal, the firm sells everything it produces and maximizes its profits. In the monopoly model the monopolist firm is in equilibrium under the condition Mr
= MS. In this case, the monopolist maximizes its profits and also pursues the optimal policy (from the point of view of the monopoly). In the oligopoly model a firm also tends to implement optimal policies based on the actions of its competitors and expects other firms in the industry to do the same. This concept was first formulated by J. Nash (in 1951). EquilibriumNash:
each oligopolist firm behaves in the best way given the behavior of its competitors. First of all, let us consider the conditions for the emergence of oligopoly. Everyone carved out to themselves N.V. Baytov Let us compare an oligopoly with another major actor in a market economy - a natural monopoly. The typically oligopolistic firm, one of the 500 largest national and multinational corporations in the world, is usually much larger in terms of capital and geographic scope than a typical natural monopoly. It seems clear that a firm that single-handedly dominates the market should be larger than one that shares the market with few competitors. But it is precisely the size of the market, rather than the absolute value of the firm, determines whether it iswhether the market is monopoly or oligopoly. For example, petroleum products can be transported at significantly lower costs (relative to the unit price) than electricity or water; The oil industry is also oligopolistic. On the other hand, local power grids are almost always represented by a single vendor and are a natural monopoly. The market for petroleum products is generally global, while the market for electricity is local. Rice. 11.1. The difference between natural monopoly (a) and oligopoly (b). Economies of scale determine the size of the firm, while market demand determines the number of firms In fig. 11.1 Let us compare market conditions leading to the formation of a natural monopoly and an oligopoly. In Figure 11.1, a, market demand curve (D)
crosses the long-term average cost curve (LAC)
the only manufacturer to the left of the minimum point. The only enterprise in the industry with total average costs L GS and output Q, at a price R g, able to discourage potential competitors from entering the market. However, the natural monopolist will maximize profits based on the conditions ATC 0(at MC a =Mr),
limiting the output to the volume Q 0, and setting the price P t, which was discussed in chapter 9. Unlike natural monopoly, oligopoly is the “natural” result of a situation in which one firm experiences uneconomic scale, trying to dominate the market alone. At the same time, the minimum size of an effective firm is large enough, therefore, such a firm is a price setter. In fig. 11.1,6 the market demand curve intersects the firm's long-run average cost curve to the right of its horizontal segment. If a firm with a short-term cost curve ATC X would try to serve the entire market, then covering the costs would require setting a price R or higher. The second firm, building a smaller enterprise (for example, with costs ATC 0), gets the opportunity to turn into a potential monopolist by setting a price R Since the minimum production capacity to enter the industry is equal to Q 0, only a small number of firms are sufficient to produce all the required volume (Ј Qo) P P and the price of zero profit (P 0). At the same time, the number of firms in the industry (n =Q^/"
LQ^)
turns out to be too small for price competition to lead to the lowest price R. Competition among a small number of firms makes price fixing more attractive. A group of firms operating in an oligopolistic industry is able to limit output to Q^,
setting the cartel price at the level R t. Entry into the industry can be difficult, although not completely blocked: economies of scale do not prevent entry into the industry, but can set an upper limit on the number of producers. A typical oligopoly produces a wide range of goods, selling goods that are by-products in production (gasoline and petrochemicals), complements in consumption (TVs and VCRs) or similar products intended for different consumers (small, family and luxury cars). Product differentiation increases the difficulty of entry for the few sellers who must produce, sell, and advertise in many markets at the same time. God sent me a wonderful dream: Nature has changed I look - from sunset to sunrise, In a single moment to the sky: Two suns rise radiant In fiery amber porphyry. And over the resurrected land The couple were shining in the sky. S.P.Shevyrev (18061864) It is customary to begin the analysis of an oligopolistic market structure with the simplest models of a duopoly, that is, a market in which two firms operate. If it's good for the two of you, Rimma Chernavina The first theory of oligopoly was developed by a French economist and mathematician Antoine Augustine Cournot(18011877) in 1838 1 Cournot asked the question: what happens if a second seller enters the monopoly market, in which the only monopoly firm previously operated? Could the arisen duopoly(industry with two sellers) achieve stable output at certain prices and production volumes? If so, is it possible to add a third seller to the industry, then a fourth, and so on, until the monopoly turns into competition? Cournot viewed the market homogeneous product with two sellers (fig. 11.2). As in pure competition, in a homogeneous oligopoly, both sellers must establish united price: otherwise, only a seller offering a lower price can find a buyer. Suppose the market price R(and hence the average income AK) is a linear function of the total output: P=
a
b{
q,+
q2
),
(11.1) where ^ + q2
=
Q
- release of the first and second seller; while the marginal cost curve of each seller is horizontal: MC= k (k
-
constant). In the Cournot model, each duopolist assumes that in response to his actions the opponent will not change his output (the opponent's production volume is a fixed value). one Rice. 11.2. Cournot model: a) output and expected price of seller 1 (former monopolist) and b) seller 2 (firm entering the market) The situation from the point of view of the firm 1. In fig. 1
1.2, and seller 1 estimates his own average income function (AR t
= D,) as: P=(a
bq*)
bq v
(11.2) assuming that seller 2's output is q\.
The idea is that firm 2 got hold of the first q* 2
units of market demand, leaving firm 1 to operate the rest of the market. Because (abq* 2)
- the value is constant, the marginal income of seller 1 is: " AR At Mr
= MC= To
firm 1 will offer q*
units of issue. Equilibrium market price P * of the issue
P
*
a
bq
\
bq
\
(11.4)
The situation from the point of view of the firm 2. While firm 1 makes a decision on its release (q\
product, and, based on this, determines its own demand function (average income AR2
=
D2
):
P = (a
bq\)
bq2
.
(11.5)
In this case, the marginal income of seller 2 is equal to: AR In fig. 11.2, b shows that firm 2 produces q° 2 at the market price P ° if firm 1 produces the volume of output that seller 2 expects from it, i.e. q\.
In the Cournot model, price and output come to equilibrium only if each duopolist produces as much as his competitor expects (if q*
x
=
q°
v
q\=
q* 2 ,
uP°
= P *). Let's go back to the premise that the market was originally a monopoly, i.e. q*
= O in fig. 11.2,
a. Acting as a monopolist, Seller 1 sets an issue whereby Mr{
= MC = k. Then, taking into account formula (11.3), we have: a2bq l k.
(11.7)
q l =(ak) / 2b
(11.8)
P
a
b
[(
a
k
)/2
b
]
~ a + A;(And 9) Seller 2 will enter the market if the total income of firm 1 exceeds its total costs (TR{
> ГС (), that is, the market will demonstrate its attractiveness. VC l
kq l
(
l
/2
b
)(
ak
/2
P
)
1 Firstly, previously the relationship between price and marginal revenue (Mr
R+ * dn) we have already considered several times. Secondly, We know that dP/
dq t
dP/
dq2
b,
uTR l Pq r (^ a + k) [(ak) / 2b] = (l / 2) (a 2 / 2k "), seller 2 will have an incentive to enter the market if R 7, <
(1 / Ab) (a2
ak). 1
Cournot simplified the analysis by assuming zero fixed costs for both vendors. For any price above marginal cost, seller 2 tends to enter the market. But seller 2's entry into the market is contrary to the expectations of the former monopolist (seller 1). Figure 11.2 is constructed so that P °< Р*:
Expecting Seller 1 to maintain a monopoly release when q{
= (ak) / 2
b
(formula 11.8), seller 2 will define the function of his marginal income as: Mr2
(a +
k) 2
bq2
,
setting the volume of output based on the condition Mr
= MC*= k,
or (a +k) 2
bq2
= To. 2
bq2
= a or q2
= a /Ab.
When the output of seller 2 is added to the output of the former monopolist (seller 1), the market price will inevitably fall. Seller 1's expectations of a monopoly price have come into conflict with reality, and his release must be adapted to the new situation. In Cournot's model, the adjustment of output to unexpected changes in market demand (so that other sellers do not produce their expected output). given release) determines reaction function each seller. FunctionreactionsCournot[q *, = R,(q t)]
- a curve showing what volume of products will be supplied to the market by one duopolist (/) for each given volume of products supplied by another duopolist (y). Seller reaction function 1 is derived from the profit maximization rule Mr{
= MO. (abq2
)
2
bq x
= k.
We define q{
:
q r
(1/2)
(a
k
bq2
).
In this way, under duopoly conditions, the reaction function has the form: 1 This result is obtained as follows. The economic profit for seller 1 is expressed as follows: RPq{
(VC +
FC)
t >
FC y
By replacing the parameters of the monopoly with q i
and R, we'll get Pq t
= (1 / 2a +k) [(ak) / 2
b]
a2
/ 4
b
ak
/ 4
b
+
ak
/ 2
b
k2
/ 2
b
= (a2
+
ak
2
k2
) / 4
b.
VC i
kq l
(1 / 2
b) (a
k)
k
= (2
ak
2
k2
) / 4
b.
Hence it follows that Pq t
US,> FC V
if FC{
< (a2
ak) / 4
b.
9
*(a*
ty).
(11.10) At D 2= 0, =
(1 / 2
b) {
a
k)
a situation of monopoly issue arose. However, the entry into the market of seller 2 leads to a decrease in the output of seller 1 by V 2 units from each unit of output produced by seller 2, i.e. D9 1 / D? 2 (1/2) (*) 1/2. When seller 1 changes his output, seller 2 receives a new profit maximization volume in accordance with the reaction function that is derived from the solution Mr2
= MC. Firm response function 1: Have
kg
Equilibrium CournotNesha (C
N)
Firm reaction function 2: q* 2
gtaj) Rice. 11.3. The Cournot duopoly model "a) the reaction functions of the duopoly and the Cournot" solution "; b) output and prices under the conditions of monopoly, competition and duopoly Release rules for q2
are as follows: (abq t)
1
bq2
= k,
where q2
=
(1 / 2) (ak
bq x).
Because Aq2
/
D(b)
= * 1/2, then the second seller will increase his output by 1/2 unit for each unit of decrease in the output of seller 1. The ruleduopolyCournot:
if seller 1 decreases his output by one unit, then seller 2 increases his output by half a unit (and vice versa). This process of adjusting the output of one seller to the change in output of another seller is supposed to bring the total output and the resulting price into a stable equilibrium. 1 The graphic solution of the Cournot duopoly is shown in Fig. 11.3, a. ak q i = Hb ~ " At2
B) (ak bq 2) and q 2(1 / 2b) (a k bq x) we have: H + Z 2 2
q"~"2
b 2* + < b =2 T ; «" Equilibrium issues of duopolists: _ a
k
_, a
k The equilibrium outputs of duopolists are the coordinates of the Cournot-Nash equilibrium point (point C
N).
In this way, the total volume of equilibrium output under conditions of duopoly is equal to: a * = (? * 1 +? * 2) = ^ ~... (item 12) As shown in fig. 11.3, b,equilibrium duopole Cournot price(R) less than the monopoly price (P t), but more than the price of marginal costs, that is, the competitive price (R.). one An important achievement of A. Cournot lies in the fact that he revealed the very problem of duopoly. He also showed that a number of assumptions that determine the solution to equilibrium can be transferred from the duopoly model to the oligopoly model itself. Let's summarize the main parameters of the Cournot model in table. 11.2. If you ask a question, what will happen if the duopoly market enters third the seller (the duopoly will turn into a "triopoly"), then, using the reasoning given above, we get the following result: 3(a
k)
1 If sellers 1 and 2 collude, the monopoly price would require limited output, whereby the industry's marginal revenue equals (total) marginal cost. Condition Mr
= MC leads to the fact that a 2
bq
= k,
or q
= (a k) / 2
b
=
q{
+
q2
,
and P_ =
a
b 2
b a +
k If the output (and hence the profit) is divided equally between the two firms, then q{
=
q2
=
= (ak) / 4
b.
Let's put this output in the firm's reaction function and make sure that the mono output does not correspond to the Cournot equilibrium: a, = b (akbu,) =- (akb) = - ">
. 41
2
* ¦> "2b
Ab "8b
4b If the output of one seller corresponds to a monopoly, then the second seller produces more of his cartel quota, thereby reducing the price below the monopoly level. In Cournot equilibrium, the duopole price R is determined by substituting industry output into the average industry revenue function: f,2
a2
k. 3
k +
a
which is less than R, and more marginal cost while a>k.
table 11.2 Hence, it is easy to conclude that with an increase in the number of firms (P) in the industry, the output of each individual firm will decline, and the total output of the industry will rise: a
k
n Q... "* ¦- X ^ TT("
is)
Therefore, it can be argued that the Cournot model predicts the approximation of total output to the output of a completely competitive industry with a sufficiently large number of its subjects. The same thing happens with the price: .
a
k.,
n.
P =
a
bQ =
a
b
(-G)(-G). which after simplification gives: n + \ n + \ With growth P magnitude [a / (n + \)] decreases infinitely, a [
kn/ (n + 1)] approaching k,
i.e. to the marginal cost (MS). Divided into First and Second, In 1934, the German economist Heinrich von Stackelberg attempted to perfect the Cournot duopoly model. The novelty of the model was that in it duopolists can adhere to two different types of behavior: (a) strive to be the leader or (b) stay follower. This laid the foundation for a model based on price leadership. 2 If the follower of the Stackelberg model adheres to the assumptions of the Cournot model - follows its own response curve and makes a decision about the release, assuming the opponent's release is given, then the leader knows the follower's response curve and takes it into account when developing his own strategy, while acting like a monopolist. Thus, the Stackelberg model assumes the possibility of the existence of four combinations of two types of behavior (Table 11.3) Table 11.3 In the first two cases, the behavior of duopolists is stable: one firm is a leader, the other is a follower. In the third case, we have a typical Cournot model (as a special case of the Stackelberg model). In the fourth case, the unleashing of a price war is inevitable, which will continue until one of the duopolists abandons the claim to leadership, or the rivals collude. Let us consider situation 1 (2), since it is this situation that represents the Sta kelberg model in a state of stable equilibrium. The leader's profit function is equal to the product of the price of his product (Formula 11.2) multiplied by the output: ni
=
p ^ 1 ~kQi
=
(a~
H> _ 6< 7 i)? i _ k(iv
In this formula q2
represents the reaction function of the second firm (Formula 11.10). Substituting its value into our profit formula, we have: "
a
k
bqA a
k J
Equating the derivative of this expression with respect to q l
zero, we have: a
k Then the equilibrium price is equal to: , ^ , 3 (ak) a + 3k
,.
l.^
P = abQ = ab
v "
=--
. (11.19) ¦ leader's profit: *.=?;
("go) {
a
k?
¦ follower profit: (a
k) 2 So, the follower's profit is half that of the leader. It remains to consider the last, fourth combination of behavior of the Stackelberg model, in which both firms strive to become leaders. This is quite simple to do: it is enough to substitute the values of the optimal output into the already well-known function of the linear demand function both leaders: .akak s. " We got an interesting result: in the event of a price war, the price is equal to the cost, that is, the economic profit of the duopolists is zero, which is incompatible with the oligopoly model. Of course, this would be the best option for buyers. But for oligopolists it is unacceptable - this is the worst result for them (it is better to collude with a competitor, or at least accept the fate of a follower). Let's summarize. The equilibrium parameters of the Stackelberg model can be generalized as follows (Table 11.4). Cournot and Stackelberg models are alternative cases of oligopolistic behavior. Which one best describes reality depends on the industry. For an industry of roughly the same size of firms, Cournot's model is probably more appropriate. In industries dominated by one large firm, the Stackelberg model is perhaps more realistic. table 11.4
The main equilibrium parameters of the Stackelberg model Release Profit Marketprice the leader afterwardsgiver industries the leader afterwardsgiver industries 3 (ak) Ab (ak?166
3 (ak) 2 166 (a + 3k)A The butcher was always humble before Shakespeare, And he took off his hat, but he didn’t respect him in his soul: after all, Shakespeare, without a doubt, Was ignorant of the mystery of market prices. In 1883, the French scientist J. Bertrand (1822-1900) criticized the Cournot duopoly model, stating that not output, but price, is the main strategic variable of the firm. According to Bertrand, each firm sets its own price on the assumption that the competitor's price will remain fixed, that is, not output, but the price set by the firm is a constant parameter for the duopolist. As in Cournot's model, the position of duopolists in Bertrand's model is symmetrical: selling at a price below the competitor will be the choice strategy for both firms. Therefore, it is obvious that the process of price reduction by one or the other firm can continue until the equilibrium price becomes equal to the marginal cost (P * = MC). In fig. 11.4 depicts the reaction function of the Bertrand model. FunctionreactionsBertrand[
P*
i =
R(P t)]
- a curve showing at what price the product will be supplied to the market by one duopolist (/ ") for each given price of the product supplied by another duopolist (y). In this case, two firms sell goods, the demand for the products of each of them depends on its own price and the price of a competitor. Duopolists choose prices at the same time, but each perceives the opponent's price as given. Firm response curve 1 [
R^
PJ]
shows the profit-maximizing firm 1 as a function of the price set by firm 2. The response curve of firm 2 has the same meaning. Firms can reduce the price to the Bertrand-Nash equilibrium point (B
N),
in which the price equals the marginal cost, and the economic profit becomes zero. Let us now summarize the data in Table. 11.211.5 put together in order to compare the results of the strategies of the Cournot, Bertrand and Stackelberg duopoly. To these we add one more strategy of duopoly: the strategy of collusion with the aim of creating a joint monopoly (Table 11.6). Rice. 11.4. Reaction functions of the Bertrand model Table 11.5 Table 11.6 As follows from this table, the most profitable strategy for duopolists would be to create a joint monopoly by collusion, since the total profit obtained as a result of this strategy is the highest. In second place (in terms of obtaining the maximum total profit) is the Cournot model, in third - the Stackelberg model. In Bertrand's model, oligopolists do not receive positive economic benefits (as in a situation of pure competition). I was looking for an answer S. Misakovsky In 1939, Harvard economist Paul Suisi proposed the following explanation seeming price inflexibility in industries with few sellers. Opponents react differently to price changes upward and downward. If the firm A will raise the price of its products, the company V gets new customers, which firm L will lose from the price increase. If, on the other hand, the firm A will lower the price of its products - the company V will lose some of its clients. Every firm strives to avoid losses. If the reason for the loss of profit of the firm V was the decrease in the price of goods by the company A, then it is natural to expect from the firm V similar to a decline in prices. From the point of view of the firm A this means that when the price of its products rises, it should expect the loss of some of its customers in favor of rivals (therefore, the demand curve of the firm A elastic when the price rises). But if the firm A will lower the price of its products, it should not count on enticing customers from competitors, since they will also be forced to lower prices (the firm's demand curve A inelastic when the price is reduced). 1 Suizi's hypothesis is expressed using the following premises: The logical consequence of these premises is the model of the broken demand of the oligopoly, shown in Fig. 11.5. Let firm L produce the volume of products Of per unit of time at the equilibrium market price R. At the point (P 0, Q ^) two curves intersect: line D0
is a demand curve of the type ceteris
paribus.
It reflects the property of invariability of competitors' prices when increasing firm prices A. Line D x
is a demand curve of the type mutatis
mutandis.
It reflects the property of price changes by rivals following downgrading prices for their products by the company A.
Demand curve ceteris
paribus
D 0 is more elastic than the demand curve mutatis
mutandis
D v
As a result, the overall demand curve of the oligopoly (abc)
has a broken appearance. ft
About QoQi ~? Rice. 11.5. Oligopoly Demand Broken Curve What should an oligopolist undertake, having such a demand line, to maximize his profit? The answer is well known: equalize marginal revenue with marginal cost (Mr
= MS). However, the shape of the marginal revenue curve (adef)
is even more peculiar: it is not only a broken line, but also with a gap (which is explained by the presence of different slopes of the curve abc).
Break in the curve Mr
allows the firm to significantly change costs (from MC Q
before MC X without changing the profit maximizing level of output. However, in general, the fate of this seemingly original and interesting concept is not very happy. Empirical testing of the oligopoly demand curve model has cast doubt on the fact of its kink. In addition, there were accusations that the model did not explain the initial emergence of the "break price" R Why is this price located exactly at this level, and not higher or lower? In 1982, one of the most implacable critics, J. Stigler, expressed the opinion that the broken demand model does not reflect anything at all, and its presence in microeconomics textbooks is explained by the conservatism of the authors. Let's take our time. In any case, the broken demand model can be useful for explaining situations in new oligopolistic industries, when rivals still do not know each other well, or in the case of newcomers joining the industry, about whom also little is known. When a doctor and a priest Strengthen an alliance with a judge, the work is not in vain: They will clean you in no time for the sake of money, kill you and sing you out. The strategy of oligopolists, with all its diversity, has two poles: rivalry and collusion. If oligopolists collude, then they can agree and act as a single monopoly, jointly maximizing the industry's profits. On the other hand, they can compete with each other for share in the branch market. Equilibrium of the industry in collusion. When oligopolists collude, they can agree on prices, market shares, advertising costs, etc. The formal agreement of the oligopolists is called cartel. The cartel is able to maximize profits if it acts as a monopoly, that is, if the members of the cartel act as one firm. A similar situation is shown in Fig. 11.6. The general market demand curve corresponds to the market curve Mr.
Curve MC cartel is the horizontal sum of the curves MC its members. Profit is maximized on release Q*
and price R* at MS =Mr.
However, once the cartel price has been negotiated, cartel members can compete with each other using non-price competition for getting a larger share of sales Q*.
Rice. 11.6. Profit-maximizing cartel If, on the other hand, the members of the cartel agree among themselves on the division of the market, then each of them will receive a corresponding quota. Silent Collusion: Price Leadership. Since in many countries anti-cartel legislation is in force in the name of combating monopolization, firms can enter into tacit collusion. One form of tacit collusion is price leadership. The leader can be the largest firm in the industry. This situation is known as the price leadership of the dominantacceptance. If the price leader is a firm whose behavior deserves the trust of other members of the oligopoly, then this situation is called pricefirm leadership All other firms in the industry are called show jumpingrental environment. At the price leadership of the dominant company the leader maximizes profits based on the equality of his own marginal costs and marginal income. In fig. 11.7, a the curves of the market demand and supply of the competitive environment are shown. Firms in a competitive environment, like firms in perfect competition, take the price (set by the leader) as given. The leader's demand curve is the portion of the market demand minus the demand curve of the competitive environment. At a price R ( all market demand is satisfied by the competitive environment and the demand for the leader's product is zero (point a). On the contrary, at a price R 2 the entire market demand is satisfied by the leader, and the demand for the products of the competitive environment is zero (point B). MC the leader S competitive environment S competitive environment Rice. 11.7. Price leadership of the dominant enterprise: a) division of the market between the leader and the competitive environment; b) determination of price and output The leader's profit will peak when the marginal cost of his production equals the marginal revenue. This state corresponds to the release point of the leader (q L)
and the price set by him (P L).
The competitive environment will take this price as given and will produce Q F
products. The total output in the industry will be equal to Q T.
Factors conducive to collusion. Collusion between firms is more likely when firms know each other or the leader well and when they trust each other. Among the factors contributing to collusion are the following: Collusion breaking. In collusive situations, there is always the temptation to break quota agreements or lower prices. Imagine a cartel of five identical firms (Figure 11.8, a). Let the equilibrium price be 10 den. units, and the equilibrium volume is 1000 units. with a quota of each company of 200 units. Rice. 11.8. Firm's tendency to increase production above quota or lower cartel prices Now let's look at fig. 11.8, b. It illustrates the situation of one of the participants in the cartel, a company A. Cartel price 10 den. units equals to the same marginal revenue for an individual firm. This will create a desire for the members of the firm to produce more than the quota. The firm will maximize its profits by selling 600 units. goods at MS = P =Mr,
taking part of the market from other cartel members, but leaving the total output of the industry unchanged. On the other hand, the firm A may be tempted to lower the selling price of their products below the cartel price. Having a sufficiently elastic demand curve (AR
in fig. 11.8, b), the firm can reduce the unit price to 8 den. units when selling 400 units. products. Naturally, in response to these violations of the collusion, other members of the cartel can take countermeasures, which is fraught with the outbreak of a price war. Poetry? It's a hobby. Basil Bunting (19001984) As attractive as the result of the collusion may be to its participants, it is difficult to keep it - after all, what benefits one firm often harms the rest of the firms. The problem of confrontation of colluded oligopolists reminds the prisoner's dilemma. The essence of this dilemma is as follows. Two prisoners are being held in separate cells for a serious crime. However, the prosecution does not have sufficient evidence (evidence is sufficient only for a year in prison). Each prisoner was told that if he confesses and the other does not, then the first will be released, and the second will receive 20 years. If both confess, then each will receive 5 years (Table 11.7). Situations similar to the prisoner's dilemma can be analyzed on the basis of the mathematical theory of games developed by J. von Neumann and O. Morgenstern back in the 1940s. one Table 11.7 PrisonerY Confession
Silence Confession Prisoner X Silence Table 11.8 depicts the consequences of implementing two advertising strategies for two sellers. With the implementation of the strategy of the current advertising, each company receives 100 million rubles. profits from the sale of durable goods (eg cars). Firm L believes that if it increases its advertising budget by 20 million rubles, it will take over part of the firm's market. V and will increase its revenue by 40 million, receiving 20 million in net profit. This transfer of profits from the firm V to the firm A will happen if the advertising budget of the company V will remain unchanged. Similarly, if the firm V will increase its advertising costs by 20 million compared to the expenses of the firm A, then the firm V will receive 40 million additional revenue and 20 million rubles. additional profit. one table 11.8
shows that the simultaneous increase by two firms of their budgets by 20 million rubles. will lead to a decrease in profits. The maximum total profit will be obtained if both firms maintain their current advertising budgets. Table 11.8 Keeping the flow Increasing the budget total budget that for 20 million rubles. Saving the current A = 100 million R. A = 120 million R. strategy B = 100 million R. B = 60 million R. the seller V Increasing the budget A = 60 million R. A = 80 million R. pa 20 million rubles. B = 120 million R. B = 80 million R. The worst-case solution would be independent formation of the advertising budget by each firm (in the absence of collusion). 1 The price elasticity of a firm's advertising activities can be defined as c m= = (dQ, / & 4,) (A
J
Q),
and the cross elasticity of advertising as r | iA = (EO / d (U). Therefore, the percentage change in the firm's income i
as a result of a 1% change in its advertising budget (with constant chains) is equal to: dAJA, ~ dA, "p &" qSa h ^ "aA, ^ L * dA J / A J where in "*" dA t / A,
"
Not enough pretzels.
I doubt it won't be enough.
But there is still a possibility.
The old pastry chef is dead. But
His disappearance is unlikely
Someone will notice, except for loved ones
And maybe one old lady
From our cafe "Vec Riga". 1 (1969)Key concepts
10.1. Industrial group: uniformity and symmetry
I am a double all around! I am a double to all around!
Leonid Aronzon (19391970) Translation by R. McKane
Structural Variables of Monopolistic Competition10.2. Short-term and long-term balance
Mei $ ov 5 Tinas mvq EXX ^ u NAPOI; like in the old days>
laAiv eq shrhl? We, the beautiful Hellas, a happy people,
Flo? hgLso kt ayuuusotsL B our heart shed merry meekness!
Tivi lraothera Kepaaov tov vow The whole market is 1IM to dob zabali,
Km ttiv ayopav 4 niv aya 9 cov
EtzlHoelUsi, to Meyapcov CKopoScov, Cucumbers, pomegranates, evil garlic,
ZvKUCOv jipaxov, m Xw, pouov, Small shirts for slaves.
DoiLuch xAaviCKiovcov niKpcov Let us see the Boeotians again /
Km Boicoxcov ye cpepovtaa iSeiv with partridges | with krya kwami, with a goose, with a sheep,
Km Kepi tautq nnaq aOpoouq
Pts / covouvtaq tyrraSeovsh And around we T0LPINSYA | im> homonym,
Morikhso, TeHea, Ghaikett, aUoiq We tear out of our hands and bargain. Cling to the trays
Tevemq poXHosch kata MeXav 9 vov Famous gourmets: Morih, Teli
HKeiv wrepov gsch t 4 v ayopav, and Glavket. Finally Melanthius is coming:
Taq 5 e yayara59t ... He comes to the market later, Alas!
Aristophanes (446385 BC) All sold out ...
10.3. Effectiveness of monopolistic competition
L.A. May (18221862)
10.4. Competitive Markets for Product Attributes
All with swans and rainbows.
And Vanka is an avant-garde artist
All cubes squares.
Vanka - avant-garde
He targets everything with a sniper's squint.
He knows the unplaced
Savings appetites
Foolish merchant,
Antichrist of a new type. (1971)
R 200Control tasks
Review questions
TaskChapter 11 Oligopoly
And the rat took the ferret.
And the ferret did Alice
Present in four stalls.
And life flowed into a miracle
She and he shine:
For every bottle of beer
They are asking for a million.
(1995)
Nikolay TryapkinKey concepts
Structural variables of oligopoly11.1. Economies of scale and oligopoly
In a huge piece:
There are jam and meringues,
And a rough white cream.
Everyone thinks: I'll eat
And, when I am satisfied, I will fall asleep,
And your sweet dream
I will not share with anyone.
11.2. Classical duopoly theories
Flows to meet each other.
Everything breathes a double life:
Two suns reflect the waters
Two hearts beat in the chest of nature -
And the blood flows with a double key
Through the veins of God's creation,
And the doubled world lives -
In a single moment - two moments. (1827)11.2.1. Cournot theory
How good it is here alone. (1994)
MR l P + J ^ q i = (abq * 2) ~ bq i bq i = (abq * 2) 2bq i.
(11.3)
MR 2= P + Iq ~ 2? 2 "(" SCH) 2bq r
(11.6)
ak 3 ak 1 ak
Basic equilibrium parameters of the Cournot model 1
11.2.2. Stackelberg theory
Sometimes we don't think before the deadline
What's the First -
An unknown way to create
Second -
Just tamp the road
That the First live in one impulse,
Well, the Second ... They look businesslike. (1968)
V. A. Lakhno
Possible combinations of behavior in the Stackelberg model
i, = - P121 4)
P = a "b (2b + ^ b) = k
t 11'22)
11.3. The oligopoly price problem: the Bertrand model
Thomas B. Aldrich (18361907)
Basic equilibrium parameters of the Bertrand model
Comparison of duopoly models
11.4. Polyline demand model
To the question.
I barely found him
- the answer became a question. (1982)
11.5. Rivalry and collusion
Francisco A. Figueroa (17911862)
a) „w / b)
RA
11.6. Game theory and its application in advertising
I breed pigeons.
And Mr. Smith is embroidering with a sail.
This is not a job. You don't sweat.
You get no money.
I would take up an advertisement for soap.
The Prisoners' Dilemma
This concept can be used, for example, in the strategy of advertising activities of an oligopoly. With an oligopoly, product differentiation and sales rivalry can cause excessive increases in ad spend. The firm is able to optimize these costs based on game theory.
Non-price competition of monopoly: profit from advertising strategy
Control tasks
Review questions
Problemsfordiscussions
Task
each firm is equal to: С = 100 + 10 Q, i
=
1.2 (where MC t
= 10). Find:
the belief that another seller will not change the issue);
firms have conspired.