Duopoly is a market structure in which two entities, protected from the appearance of other sellers, act as the only manufacturers of standardized products that do not have close substitutes. Let's consider this model in more detail.
Duopoly: meaning
This structure allows us to illustrate the impact of the proposals of an individual seller on the equilibrium issue in relation to the response of a competitor. This model was proposed by the French scientist Cournot. Duopoly in the economy is the following scheme. Each of the two entities assumes that the competitor will maintain its output at the current level unchanged.
Duopoly: what is it?
Consider how the circuit works. Duopoly is a model that is based on 2 assumptions about the behavior of the enterprise. First of all, each company focuses on maximizing profits. At the same time, the company believes that if it changes the volume of its output, another organization will retain its own at the current level. In such conditions, equilibrium in the market is achieved in the following way. Let's say sellers A and B are present in the region. They sell identical goods. For other entities, market entry is closed. Suppose enterprise A begins to produce goods first. It captures the entire market and assumes that no competitors will appear on it. In such a situation, the company behaves like a monopolist. However, immediately after the start of production, company B appears on the market. It believes that company A will not change the volume of output that has been achieved. Company B will increase supply. This, in turn, will provoke a decrease in the price of products. Enterprise B will periodically increase the volume, while Company A will decrease it. The final equilibrium output for each company will reach 1/3, and the total production volume 2/3 competitive.
conclusions
It can be seen from the above description that duopoly is such a situation in which one of the firms chooses the output volume that maximizes its income. After this, the second enterprise, believing that the level of production will be unchanged, establishes its own, aimed at obtaining the greatest possible profit. This process proceeds in stages until companies reach equilibrium.
Specificity
Duopoly is a non-cooperative equilibrium. Each enterprise makes decisions suggesting the maximum possible income for certain actions of competitors. Equilibrium can be represented using response curves. The line shows the maximizing production volumes that will be implemented by one company, if the level of another company is known. The basic model predicts a downward trend in price to marginal cost as the number of sellers increases. The addition of probable changes will rank oligopolistic models of value formation from competitive to monopolistic.
Stackelberg Scheme
This model is a development of the Cournot structure. The asymmetric behavior of enterprises is added to the scheme. In other words, it is assumed that some of the firms will behave aggressively, that is, become a leader. Another enterprise will be a follower (passive behavior). The leader chooses the volume of production first. He will maximize profits taking into account the issue that the follower will carry out. The first company believes that the second company also wants to get a high income, but with an existing offer. This allows the leader to accurately predict the follower's output. This market interaction has the character of quantitative (non-price) discrimination by an active company. The "first move" is of key importance - the choice of the volume of production and, accordingly, the cost of the goods.
