Explain the role of conjectural variations within the context of quantity settings duopoly. Use this idea to explain the difference between Cournot and Stackelberg models of duopoly
Summary :
Table of Contents
- Introduction.
- Conjectural variations.
- The underlying idea of duopoly and more generally of oligopoly.
- The Cournot model of duopoly.
- Stackelberg v. Cournot.
- Cournot.
- Stackelberg.
- Conclusion.
- Bibliography.
Abstract
In the context of oligopoly, firms do not have to worry about strategic behaviour as do monopolies, as far as consumers are concerned. Nonetheless, as they face competition from a few other firms, strategies in terms of price-setting and quantity-setting are of prime importance. What we want to look at in this essay is the range of the different strategies a duopolistic firm (i.e. an oligopoly that faces only one competitor) might choose, in a non-cooperative quantity-setting context. We want to introduce the concept of conjectural variations in that analysis, as it helps understanding the divergence between the two main models of duopolistic quantity-setting, cournot and stackelberg. By doing so, we will be able to compare these two approaches to duopolistic profit-maximizing firms and to determine why firms should adopt one strategy or the other.
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