Differences between Monopoly and

Duopoly

ByPrateek Pandey(110101180)Rahul Aggarwal(110101189)

Pankaj Jatav(110101168)Rahul Kumar(120101813)

MONOPOLY

A Monopoly is an industry where there is a single seller of a good without any close substitutes.

Can set its price without any fear of a rival (no rival).Faces the entire market demand directly

Contd..

Studying the basic monopoly case is interesting in its own right.

Example: The United States Postal Service, which is by law the sole provider of first-class mail services, is an example of a monopoly.

Contd..

Standard assumptions of Monopoly:No SubstitutesPrice MakingBarriers to entry

Contd..

Social Costs of Monopoly:

X-inefficiency

Rent Seeking

Contd..

Benefits of Monopoly:

Natural Monopoly

R&D and Patent Policy

DUOPOLY

Two Firms in The Market

Basic form of Oligopoly

Homogeneous or Differentiated Product

The most commonly cited duopoly is that between Visa and Mastercard, who between them control a large proportion of the electronic payment processing market.

Duopoly Models

There are two principal duopoly models:

The Cournot model

The Bertrand model

The Cournot Model

The Cournot model is a model of a two-firm industry (duopoly) in which a series of output-adjustment decisions leads to a final level of output between the output that would prevail if the market were organized competitively and the output that would be set by a monopoly.

The Bertrand model

In this each one of them will assume that the other will not change prices in response to its price cuts. When both firms use this logic, they will reach a Nash Equilibirium.

Barriers to entry

Reputation - A new entrant may suffer just from being new

Strategic barriers - Oligopoly firms often pursue strategies designed to keep out potential competitors

Legal barriers - Patents and copyrights, Govt. legislation

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Differences

On the Basis of Firms:

A monopoly is a firm who is the sole seller of its product, and where there are no close substitutes.

Examples: Microsoft and Windows

A Duopoly contains two firms that cover the whole market

Example- Intel & AMD

Differentiated by Example

In Monopoly:

There is a fixed or setup cost in building the bridge, but the marginal cost of allowing one more car is close to zero. Therefore, average cost falls as quantity of cars increases. Once the bridge is built, the natural monopoly does not fear entrants into the market.

In Duopoly: (Extended Example)

If a second bridge is produced, average costs would nearly double as the two producers split the market. Having just one bridge is more efficient.

On the Basis of Demand Curve

Quantity of Output

(a) A Duopoly Firm’ s Demand Curve (b) A Monopolist’s Demand Curve

0

Price

Quantity of Output0

Price

Demand

On the Basis of Price Discrimination

In Monopoly:

Price discrimination is possible because no other competitor is present in the market.

In Duopoly:

Price discrimination is not possible because one other competitor is present in the market.

Advertising

In Monopoly:

No Advertisement is required.

In Duopoly:

Advertisement is required to attract more customers

On the basis of Graffin Paradox

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In Monopoly:

Most chances of following Graffin Paradox.

Example: Indian Railway,

In Duopoly:

Advertisement is required to attract more customers

On the basis of Collusion

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In Monopoly:

One Firm

In Duopoly:

Logically One Firm

To apply the same method to a simple oligopoly market

Assume that Gus and Filip must make their decisions independently

No matter what Filip does, Gus’s best move is to charge a

low price—his dominant strategy

The same holds for Filip

The outcome is a Nash equilibrium

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On the Basis of Defeating Competitor’s Strategy

In Monopoly:N/A

In Duopoly:Simple Duopoly Game

A Duopoly Game

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Confess

Confess

Don’t Confess

Filip’s Actions

Gus’s profit = $25,000

Filip’sProfit =$25,000

Gus’s profit= –$10,000

Gus’s profit= $75,000

Gus’s profit= $50,000

Filip’sProfit =$–10,000

Filip’sProfit =$75,000

Filip’sProfit =$50,000

Gus’s ActionsDon’t Confess

Summary

Products differentiated –Intel & AMD

Homogeneous-VISA CARD & MASTERCARD

Number of firms

Products differentiated

or homogeneous

Price a decision variable

Free entry

Distinguishedby Examples

Monopoly OneA single,

unique productYes No

Still constrainedby market demand

Public utilityPatented Drug

Duopoly Two Either Yes Limited Strategic behaviorIntel and AMD

in X86 CPU market

Thank You