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

Type :

Market study

Pages :

6 pages

Format :

.doc

Published date :

01/15/2009

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Summary :

 
 

Table of Contents 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 Table of Contents

 
  1. Introduction.
  2. Conjectural variations.
    1. The underlying idea of duopoly and more generally of oligopoly.
    2. The Cournot model of duopoly.
  3. Stackelberg v. Cournot.
    1. Cournot.
    2. Stackelberg.
  4. Conclusion.
  5. 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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