Differences between duopoly and monopoly

Differences between duopoly and monopoly

1. Differences between
Monopoly and Duopoly
By
Prateek Pandey(110101180)
Rahul Aggarwal(110101189)
Pankaj Jatav(110101168)
Rahul Kumar(120101813)

2. 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

3. 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.

4. Contd..
Standard assumptions of Monopoly:
No Substitutes
Price Making
Barriers to entry

5. Contd..
Social Costs of Monopoly:
X-inefficiency
Rent Seeking

6. Contd..
Benefits of Monopoly:
Natural Monopoly
R&D and Patent Policy

7. DUOPOLY
Two Firms in The Market
Basic form of Oligopoly
Homogeneous or Differentiated Product

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

9. Duopoly Models
There are two principal duopoly models:
The Cournot model
The Bertrand model

10. 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.

11. 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.

12. 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
12

13. Differences

14. 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

15. 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.

16. 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

17. 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.

18. Advertising
In Monopoly:
No Advertisement is required.
In Duopoly:
Advertisement is required to attract more customers

19. On the basis of Graffin Paradox
19
In Monopoly:
Most chances of following Graffin Paradox.
Example: Indian Railway,
In Duopoly:
Advertisement is required to attract more customers

20. On the basis of Collusion
20
In Monopoly:
One Firm
In Duopoly:
Logically One Firm

21. 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
21
On the Basis of Defeating
Competitor’s Strategy
In Monopoly:
N/A
In Duopoly:
Simple Duopoly Game

22. A Duopoly Game
22
Confess
Confess
Don’t Confess
Filip’s Actions
Gus’s profit
= $25,000
Filip’s
Profit =
$25,000
Gus’s profit
= –$10,000
Gus’s profit
= $75,000
Gus’s profit
= $50,000
Filip’s
Profit =
$–10,000
Filip’s
Profit =
$75,000
Filip’s
Profit =
$50,000
Gus’s Actions
Don’t Confess

23. Summary
Products differentiated –Intel & AMD
Homogeneous-VISA CARD & MASTERCARD
Number
of firms
Products
differentiated
or homogeneous
Price a
decision
variable
Free
entry
Distinguished
by Examples
Monopoly One
A single,
unique product
Yes No
Still constrained
by market demand
Public utility
Patented Drug
Duopoly Two Either Yes LimitedStrategic behavior
Intel and AMD
in X86 CPU
market

24. Thank You