2.  Cournot’s duopoly model
 Sweezy’s kinked demand curve model
 Price leadership models
 Collusive models :The Cartel Arrangement
 The Game Theory
 Prisoner’s Dilemma

3. Antoine Augustin Cournot was a French
philosopher and mathematician. Antoine
Augustin Cournot was born at Gray
In 1838 the book Researches on the
Mathematical Principles of the Theory of
Wealth was published, in which he used the
application of the formulas and symbols of
mathematics in economic analysis

4. ASSUMPTION
 There are two firms each owning an artesian mineral
water well.
 Both the firms operate their wells at zero marginal cost
 Both of them face a demand curve with constant
negative slope
 Each seller acts on the assumption that his competitor
will not react to his decision to change his output and
price

5. 

6. Criticism
 Wrong calculation about competitor’s behavior
 Zero cost of production

7.  "Kinked" demand curves and traditional demand
curves are similar in that they are both downwardsloping. They are distinguished by a hypothesized
concave bend with a discontinuity at the bend - the
"kink." Therefore, the first derivative at that point is
undefined and leads to a jump discontinuity in
the marginal revenue curve.

8.  Classical economic theory assumes that a profit-maximizing
producer with some market power (either due
to oligopoly or monopolistic competition) will set marginal
costs equal to marginal revenue. This idea can be envisioned
graphically by the intersection of an upward-sloping marginal
cost curve and a downward-sloping marginal revenue curve
(because the more one sells, the lower the price must be, so the
less a producer earns per unit). In classical theory, any change in
the marginal cost structure (how much it costs to make each
additional unit) or the marginal revenue structure (how much
people will pay for each additional unit) will be immediately
reflected in a new price and/or quantity sold of the item. This
result does not occur if a "kink" exists. Because of this jump
discontinuity in the marginal revenue curve, marginal costs
could change without necessarily changing the price or quantity.

10.  the kinked demand analysis only suggests why prices
remain sticky
 Only explain the stability of output and price
 Price stability does not stand the test of empirical
verification

11.  The firms in the oligopolistic market are not happy with
price competition among themselves. They try various
methods to maximize joint profits. Price leadership is one
of the means which provides relief to the firms from the
strains of price competition.
 The firms in the oligopolistic industry (without any formal
agreement) accept the price set by the leading firm in the
industry and move their prices in line with the prices of the
leader firm. The acceptance of price set by the price leader
firm maximizes the total profits of each firm in the
oligopolistic industry.

12. The main assumptions of price leadership model under oligopoly are as under.
(1) There are two firms A and B in the market.
(2) The output produced by the two firms is homogeneous.
(3) The firm A being the low cost firm or a dominant firm acts as a leader firm.
(4) Both of the firms face the same demand curve
(5) Each of the two firms has an equal share in the market. The price and
output determination under price leadership

13. A. Price leadership by low-Cost firm
B. Price leadership By a Dominate Firm
C. The Barometric leadership
Criticism
 Problem in pricing and output
 Acceptance of small firms

14.  A cartel is a formal (explicit) "agreement" among
competing firms. It is a formal organization of
producers and manufacturers that agree to fix
prices, marketing, and production.
 Cartels usually occur in an oligopolistic
industry, where the number of sellers is small (usually
because barriers to entry, most notably startup
costs, are high) and the products being traded are
usually homogeneous.
.

15. Barriers
 The number of firms: As the number of firms in an
industry increases, it is more difficult to successfully
organize.
 Cost and demand differences between firms.
 Economic recession: An increase in average total cost
or a decrease in revenue

16.  The classical models of strategic action and reaction
 The cartel system of price and output determination.
 Game theory – a mathematical technique to show oligopoly
firms play their games/
The nature of the problem
Prisoners dilemma
Two person A and B – match fixing- arrested by CBI.
 If both confess they ill get 5yr imprisoned
 If both denies will be free
 If one confesses & turn approver get 2yr and other gets 10 yr

17. B’s Option
Confess
Deny
A’s OptiOn
Deny
A
B
A
B
5
Confess
5
2
10
A
B
A
B
10
2
0
0

18. THANK YOU
By Priya