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    Summary - Duopoly With Simultaneous Vs Sequential Moves

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    Summary - Duopoly With Simultaneous Vs Sequential Moves

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    ghmehdi329
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    Summary - Duopoly with simultaneous vs sequential moves

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    Summary - Duopoly With Simultaneous Vs Sequential Moves

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    ghmehdi329

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    Firm 𝑖’s problem in a duopoly with quantity competition

    𝑀𝑎𝑥𝑞𝑖 𝜋(𝑞𝑖 ) = 𝑇𝑅(𝑞𝑖 ) − 𝑇𝐶(𝑞𝑖 )


    Let −𝑖 denote the other firm in the market (not 𝑖)

    Timing of decisions: Cournot (simultaneous) Stackelberg (sequential, assume firm −𝑖 moves first)

    Firm 𝑖’s total revenue: 𝑇𝑅(𝑞𝑖 ) = 𝑃(𝑄)𝑞𝑖 = 𝑃(𝑞𝑖 +𝑞−𝑖 ) 𝑞𝑖 𝑇𝑅(𝑞𝑖 ) = 𝑃(𝑄)𝑞𝑖 = 𝑃(𝑞𝑖 +𝑞−𝑖 ) 𝑞𝑖

    Firm 𝑖’s total cost: 𝑇𝐶(𝑞𝑖 ) 𝑇𝐶(𝑞𝑖 )

    Firm 𝑖’s profit 𝜋(𝑞𝑖 ) = 𝑇𝑅(𝑞𝑖 ) − 𝑇𝐶(𝑞𝑖 ) = 𝑃(𝑞𝑖 +𝑞−𝑖 ) 𝑞𝑖 − 𝑇𝐶(𝑞𝑖 ) 𝜋(𝑞𝑖 ) = 𝑇𝑅(𝑞𝑖 ) − 𝑇𝐶(𝑞𝑖 ) = 𝑃(𝑞𝑖 +𝑞−𝑖 ) 𝑞𝑖 − 𝑇𝐶(𝑞𝑖 )

    Firm 𝑖’s marginal revenue: 𝑑𝑇𝑅(𝑞𝑖 ) 𝑑𝑇𝑅(𝑞𝑖 )


    𝑀𝑅(𝑞𝑖 ) = 𝑀𝑅(𝑞𝑖 ) =
    𝑑𝑞𝑖 𝑑𝑞𝑖

    Firm 𝑖’s marginal cost: 𝑑𝑇𝐶(𝑞𝑖 ) 𝑑𝑇𝐶(𝑞𝑖 )


    𝑀𝐶(𝑞𝑖 ) = 𝑀𝐶(𝑞𝑖 ) =
    𝑑𝑞𝑖 𝑑𝑞𝑖

    First order condition, firm 𝑖: 𝑑𝜋 𝑑𝜋


    = 0 → 𝑀𝑅(𝑞𝑖 ) = 𝑀𝐶(𝑞𝑖 ) → 𝐵𝑅𝐹𝑖 = 0 → 𝑀𝑅(𝑞𝑖 ) = 𝑀𝐶(𝑞𝑖 ) → 𝐵𝑅𝐹𝑖
    𝑑𝑞𝑖 𝑑𝑞𝑖

    Firm −𝑖’s total revenue: 𝑇𝑅(𝑞−𝑖 ) = 𝑃(𝑄)𝑞−𝑖 = 𝑃(𝑞𝑖 +𝑞−𝑖 ) 𝑞−𝑖 𝑇𝑅(𝑞−𝑖 ) = 𝑃(𝑄)𝑞−𝑖 = 𝑃(𝑞𝑖 (𝑞−𝑖 ) + 𝑞−𝑖 )𝑞−𝑖 where 𝑞𝑖 (𝑞−𝑖 ) is 𝐵𝑅𝐹𝑖

    Firm −𝑖’s total cost 𝑇𝐶(𝑞−𝑖 ) 𝑇𝐶(𝑞−𝑖 )

    First order condition of firm −𝑖: 𝑀𝑅(𝑞−𝑖 ) = 𝑀𝐶(𝑞−𝑖 ) → 𝐵𝑅𝐹−𝑖 𝑀𝑅(𝑞−𝑖 ) = 𝑀𝐶(𝑞−𝑖 ) → From here find 𝑞−𝑖

    Nash equilibrium Where 𝐵𝑅𝐹𝑖 and 𝐵𝑅𝐹−𝑖 intersect Found using the two FOCs (Plug 𝑞−𝑖 into 𝐵𝑅𝐹𝑖 )

    Quantity supplied in the market 𝑄𝑆 = 𝑞𝑖 +𝑞−𝑖 𝑄𝑆 = 𝑞𝑖 +𝑞−𝑖

    Price Endogenous, determined by 𝑄𝑆 = 𝑞𝑖 +𝑞−𝑖 Endogenous, determined by 𝑄𝑆 = 𝑞𝑖 +𝑞−𝑖

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