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An Agreement between Two Duopolists to Function

where π is the profit of the sole proprietorship, Q is the level of industrial production, q is the level of output of the sole proprietorship (assuming that the two enterprises are identical), P is the price of this output, P (Q) is the function presented in equation 1, which indicates the level of P associated with each level of Q, and C(q) is a feature that specifies the total business cost associated with each stage of production. To maximize its profit, each company adjusts q until π reaches its maximum, at this point, company No. 1 will be better off if it does not earn $5643.54 thousand against $5187.85 thousand in the first case and 4474.57 verses 4014.43 in the latter case, both in the event that company No. 2 adheres to the collusive agreement and in the event that it does not. The situation is exactly the same for company #2. If company No. 1 adheres to a secret deal, company No. 2 will earn $5643.54 thousand by breaking the deal against $5187.85 through collusion. And if the No. 1 company breaks the collusive deal, the No.

2 company will earn $4474.58 thousand, compared to $4014.43 thousand by breaking them as well. As mentioned earlier, this equilibrium was established by Cournot, using what became a Nash equilibrium many years later thanks to Nash`s work on game theory. Collusion involves an agreement between competing companies with the aim of manipulating the market, often by inflating prices. As described in this Washington Post article, Apple was accused in 2012 of working with publishers to artificially increase the prices of e-books offered through the iBookstore service. The allegation included allegations of conspiracy between Apple and five publishers, suggesting that prices had been set, which led to an unfair situation in the consumer market. c. The strategic decisions faced by inmates are identical to those of companies involved in competitive agreements. Mergers occur when large companies dissolve and merge into a single large company, thus eliminating competition (Kamien and Schwartz 54). The difference between olig.

The simple example given here far underestimates the problem faced by a government agency whose job it is to regulate a duopoly or even a monopoly by imposing the socially efficient price on it. To this end, the authorities must be able to estimate the marginal costs of business and industry as well as the consumer demand curve for the product. In order to obtain useful information on costs, they must certainly look at the evidence they have received directly from companies that have a clear incentive to distort their situation. Moreover, any equilibrium price, whether the monopoly price, the Cournot equilibrium price or the socially efficient price, will tend to vary over time depending on economic conditions— inability of the authorities to identify the right level and evolution of prices and adjust regulated prices accordingly can lead to greater waste of resources through regulation, as if Cournot`s balance had been lost. or even a collusive monopoly balance, were allowed to prevail. Now let`s look at the two companies in the case of the duopoly analyzed above. As can be seen in the table below, the results are exactly comparable to the prisoner`s dilemma game, except that the Nash equilibrium is that the two societies do not adhere to a collusive agreement. Boeing and Airbus are seen as a duopoly for their dominance of the large passenger aircraft production market. Amazon and Apple also dominate the e-book market.

Although there are other companies in the field of passenger aircraft and e-book manufacturing, the market share between the two companies identified in the duopoly is highly concentrated. Essentially, the demand curve of each firm has the same slope as in Figure 2, the intersection with the vertical asis being less than the intersection of the industry demand curve by an amount equal to the slope of the firm`s demand curve multiplied by the output of the other firm, assuming that the other firm makes the same price as it. The difference between this Cournot equilibrium and the collusive equilibrium is that each firm adjusts its output independently of the production of the other firm in order to maximise its profit, while in collusion it adjusts its output in conjunction with an agreed equivalent adjustment to the output of the other firm. Use the LEFT and RIGHT arrow keys to navigate between memory cards. 34. An agreement between two duopolists to act as a monopolist usually collapses because a duopoly is a form of oligopoly and should not be confused with a monopoly where a single producer exists and controls the market. With a duopoly, each company will tend to compete with the other, keeping prices low and benefiting consumers. However, since there are only two major players in an industry under a duopoly, there is some likelihood that a monopoly could be formed, either through collusion between the two companies or if one of them goes bankrupt.

In the simple example above, it seems reasonable for both companies to find a way to reach an agreement, even if such collusion is illegal and unenforceable in court. All it would take would be a phone call, followed by a movement of the initiating company towards a collusive balance. The other company will face a clear long-term profit gain if it also adopts this balance, knowing that if it does not follow, the initiating company will return to Cournot`s equilibrium. The practical problem, of course, is that the supply of products and services offered by these companies in the real world is not identical, and demand and costs change over time, with new occasional profit opportunities and some current activities sometimes becoming less profitable and having to be abandoned. Therefore, even in a situation of current equilibrium, the prices of companies will constantly adjust over time and in relation to each other. To maximize its profits within the framework of the Cournot equilibrium, the sole proprietorship must make the right decisions regarding price and production, because it is assumed that the other company will do the same. Even if the undertakings have informally agreed to reach an agreement, one of them can still claim that their recent reduction in the price of their production or, for example, the freedom to provide related services was the result of factors specific to their situation and not of a breach of the collusive agreement, when in reality it could intentionally infringe that agreement. The best understanding we can get is that the prices charged by duopolists are probably at the Cournot equilibrium level or somewhere above, but probably below the level that is possible with full agreement. b. it draws attention to the fundamental difficulties associated with maintaining cooperation agreements. The results, as should be clear in the discussion in the previous topic, are that each firm is a monopolistic supplier of half of industrial production and, given the agreement that the calculated price should be P{0}, chooses production that creates equality between its marginal incomes (and the marginal incomes of industry) with its own marginal costs.

at point d of the figure. It makes a profit equal to the area P0 b c a. The curves of all the figures presented in this section are calculated accurately with the free statistics program R and the orders of magnitude of prices, quantities and profits are displayed in the output file. Rou. These numbers are calculated using the cournot input file. R, the contents of which also appear in the output file. Under their optimal collusive agreement, each company produces 435,000 units and sells them at the collusively fixed price of $41.72, making a profit of $5187,85,000. These calculations are made assuming that the industry demand curve is 40.

Which of the following newspaper headlines is more closely related to what microeconomists study than to what macroeconomists study? they cannot agree on the price that a monopolist would charge. An important tool for analyzing the interaction of companies under conditions where collusion is possible, but where such agreements can be easily broken, is the theoretical analysis of the game. The classic example of duopoly analysis here is the prisoner`s dilemma game, which can be described as follows. Suppose there are two criminals who are jointly guilty of a serious crime, who have been arrested by the police and who are separated and interrogated at the same time. Each prisoner has the choice to confess or not to confess to the crime. .