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DIRE DAWA UNIVERSITY
SCHOOL OF BUSINESS AND ECONOMICS
DEPARTMENT OF ECONOMICS
DEVELOPMENT ECONOMICS MASTER

PROGRAMME
ADVANCED MICROECONOMICS JOURNAL REVIEW

ASSIGNMENT
BY: ABDULMEJID YUSUF
SUBMITTED TO: ABDUNASIR
JANUARY, 2023
I
JOURNAL ARTICLE REVIEW ASSIGNMENT
Journal of production and marketing research 2019; 7(1): 23-43
Minimizing gap of utility between consumer and producer in duopoly market considering
outsourcing decision, price and product tolerance
Anindya Rachma Dwicahyani, Cucuk Nur Rosyidi & Eko Pujiyanto
Abdulmejid Yusuf
Abdulmejid Yusuf, Diredawa University, MSC Development Economics Programme
 There are numerous beneficial strong sides for this article. Among these, the first is, the use
of exponential utility function rather than linear. An exponential utility function helps to
include the concept of risks and decision-making behaviors under situation of uncertainty.
This means that, it is used to incorporate the preference level of consumers as well as their
level of satisfactions to be properly reflected and provide confidential platforms under
situation of risk. When a gap of utility between consumer and producers are minimized at a
level of optimum condition both parties would get maximum satisfaction.
 The second strength of this study is provision of clear explanation for utility function
derivation. Quality attributes that influence customers perceptions have been expressed in
quantitative manner. Thirdly, the effect of boundary condition of some variable attributes
are properly identified and expressed. For example, effects of boundary of product tolerance
are identified to have negative effect over optimal solution. In similar manner; outsourcing
costs and capacity of production have also been seen in critical manner to have effect on
optimal solution. Based on this, appropriate remedial actions have been forwarded to sustain
equilibrium conditions. Lastly, the article have forwarded concrete contributions toward
future research including the models’ scalabity to incorporate many attributes of utility
through aggregation and multiplication in order to get global solution as well as expanding
it to represent oligopoly markets of more than two firms.
 Many drawbacks have also been identified for the article. At the first glance, the general
model for the duopoly market structure is Bertrand’s. But, the market structure situation was
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not well defined to be Bertrand’s throughout the article. Under Bertrand’s situation, when
the rival’s capacity is lower to capture entire market demand, firms make positive profit by
setting price above its marginal cost (Spulber, 1995). According to Spulber (1995),
asymmetric information about rival’s cost causes the Bertrand’s model equilibrium to
substantially altered, and in Bertrand’s- Nash equilibrium when rivals costs are unknown
firms make positive expected profit by setting higher price above marginal cost. Secondly,
the use of hypothetical data as the models parameter boundary setting is not fair enough
than using actual representative sample data. Representative sample data would increase the
rate of precision and protect the study from biasness. In similar fashion, the use of only one
parameter as a measure of quality could be indication of lack of fairness. Although it is
assumed that firms produce only single product, dimensional tolerance only could not
represent product quality for customer preference. Color, shape, appearance and texture are
also considered to be part of product tolerance. And lastly, expression of utility gap data has
only focusing on utility gap between customers and firms. But, as it can be seen from
results, utility gap between firms and between customers can entail us some recommended
ideas. So, interpretation of the results should further include the meanings of utility gaps
between the firms.
Generally, the article was well arranged in a manner that presents its intended objective as
clearly as possible. Its problem statements are more correlated with objective idea. The technique
of model development was well reasonable in terms of variables arrangement and setting
boundary with assumptions. Since data result was generated with wolfram- mathematica 7
software higher accuracy in generated result expected. In addition to this, the way of driving
optimal solution was also automatic software based that have significant precision. Furthermore,
adequately clear interpretations and conclusions are done for the article. And utility gap
minimization as a tool of protecting customers from risk situation is the key new findings as
addition to current knowledge base. This means that the study have made valuable significant
contributions for current knowledge base of duopoly market structure modeling. It has also open
doors for future researches especially in areas of scaling the model for oligopoly markets with
more than two firms. So, it could serve as a mile stone for such interested research scholars.
2
References
Bae, S. H., Yoo, C. S., & Sarkis, J. (2010). Outsourcing with quality competition: Insights from a
three-stage game-theoretic model. International Journal Of production research. 48(2), 327-342.
Ronnen, U. (1991). Minimum quality standards, fixed cost and competition. Rand Journal of
Economy. 22(4), 490-504.
Spulber, D. (1995). Bertrand’s competition when rivals costs are unknown. Journal of Industrial
Economics. 1(43), 1-11.

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DIRE DAWA UNIVERSITY

SCHOOL OF BUSINESS AND ECONOMICS

DEVELOPMENT ECONOMICS MASTER

ADVANCED MICROECONOMICS JOURNAL REVIEW

BY: ABDULMEJID YUSUF

SUBMITTED TO: ABDUNASIR

Journal of production and marketing research 2019; 7(1): 23-43

Anindya Rachma Dwicahyani, Cucuk Nur Rosyidi & Eko Pujiyanto

Abdulmejid Yusuf, Diredawa University, MSC Development Economics Programme

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