Chapter 7

OLIGOPOLY Độc quyền nhóm

Dr. Nguyen Bich Diep
[email protected]
OLIGOPOLY

• An oligopoly is an industry consisting of a few firms. Particularly, each

firm’s own price or output decisions affect its competitors’ profits.
• A duopoly is an industry consisting of two firms.
CHOOSING A STRATEGY
quyết định đưa ra đồng thời quyết định đưa ra lần lượt

SIMULTANEOUS GAME SEQUENTIAL GAME COOPERATIVE GAME

1 DN đưa ra mức giá và những DN khác phải

theo mức giá đó
• Simultaneous • Price leadership • Collusion
price setting • Quantity
(Bertrand model) leadership
• Simultaneous (Stackelberg
quantity setting model)
(Cournot model)
COURNOT MODEL DN cạnh tranh về sản lượng và đưa ra quyết định đồng thời

• Consider the duopolistic case of two firms supplying the same

product.
• Assume that firms compete by choosing output levels.
• If firm 1 produces y1 units and firm 2 produces y2 units then total
quantity supplied is y1 + y2. The market price will be p(y1+ y2).
• The firms’ total cost functions are c1(y1) and c2(y2).
COURNOT MODEL

Given its forecasts,

Firm 1 forecasts
firm 1 chooses its
firm 2’s output Market Equilibrium:
profit-maximizing
choice price is each firm’s
output
determined beliefs about
Given its forecasts, by total the other firm
Firm 2 forecasts are confirmed
firm 2 chooses its output
firm 1’s output
profit-maximizing
choice
output
CB xảy ra khi mỗi DN dự báo
cxac về sản lượng của đối
phương, do đó DN k muốn
thay đổi quyết định của mình
 Xây dựng mô hình: 3 bước: DN 1, DN 2, Cân bằng thị trường

giá thị trường phụ

COURNOT MODEL thuộc vào tổng sản
lượng mà 2 DN sx

• Suppose firm 1 takes firm 2’s output level choice y2 as given. The
profit-maximization problem of firm 1 is

max  1 ( y1 ; y 2 ) = p ( y1 + y 2 ) y1 − c 1 ( y1 ).
𝑦 ≥0
1
• Given y2, what output level y1 maximizes firm 1’s profit?
COURNOT MODEL

• Given firm 2’s chosen output level y2, firm 1’s profit function is
 1 ( y1 ; y 2 ) = p ( y1 + y 2 ) y1 − c 1 ( y1 )
and the profit-maximizing value of y1 solves
 1  p( y1 + y 2 ) 
= p( y1 + y 2 ) + y1 − c1 ( y1 ) = 0 .
 y1  y1
The solution, y1 = R1(y2), is firm 1’s Cournot-Nash reaction to y2.
COURNOT MODEL

• Similarly, given firm 1’s chosen output level y1, firm 2’s profit function is
 2 ( y 2 ; y1 ) = p ( y1 + y 2 ) y 2 − c 2 ( y 2 )
and the profit-maximizing value of y2 solves
 2  p( y1 + y 2 )
= p( y1 + y 2 ) + y 2 − c 2 ( y 2 ) = 0 .
 y2  y2
The solution, y2 = R2(y1), is firm 2’s Cournot-Nash reaction to y1.
COURNOT MODEL

• An equilibrium is when each firm’s output level is a best response to

the other firm’s output level, for then neither wants to deviate from its
output level.
• A pair of output levels (y1*,y2*) is a Cournot-Nash equilibrium if
y*1 = R 1 ( y*2 ) and * *
y 2 = R 2 ( y1 ).
mức sản lượng tối ưu của DN khi DN
sx mức sản lượng y1
CB: dự báo của mỗi DN = slg mà đối
thủ cạnh tranh sx ra
 y2 Firm 1’s “reaction curve”
y1 = R 1 ( y 2 ).

đồ thị của ex1 Cournot-Nash equilibrium

* y1* = R1(y2*) and y2* = R2(y1*)
y2

Firm 2’s “reaction curve”

y 2 = R 2 ( y1 ).
y*1 y1
EXERCISE 1

• Suppose that the market inverse demand function is

p = a – b(y1 + y2)
• The firms can produce goods at no costs.
• What are the reaction curves of firm 1 and firm 2?
• What is the equilibrium?
THE ORDER OF PLAY

• So far it has been assumed that firms choose their output levels
simultaneously.
• The competition between the firms is then a simultaneous play game
in which the output levels are the strategic variables.
THE ORDER OF PLAY

• What if firm 1 chooses its output level first and then firm 2 responds to
this choice?
• Firm 1 is then a leader. Firm 2 is a follower.
• The competition is a sequential game in which the output levels are
the strategic variables. Such games are von Stackelberg games.
• Is it better to be the leader? Or is it better to be the follower?
 stack: cạnh tranh bằng sản lượng
STACKELBERG MODEL
Firm 2 (quantity
Firm 1 (quantity Market price is
follower) chooses its
leader) determined by
profit-maximizing
sets its quantity total output
output

Leader
chooses a
combination
of price and
output that quy nạp ngược: nếu mình quyết định
backward induction
maximizes its lựa chọn này thì đối phương sẽ phản
profit ứng ra sao: khi DN 1 ở bước 1 thì họ
phải hình dung ra trước b2 và b3 để
từ đó lựa chọn mức giá và sản lượng
để tối đa hóa lợi nhuận của mình
STACKELBERG MODEL

• The leader chooses y1 to maximize its profit level.

s
max  1 ( y 1 ) = p ( y 1 + R 2 ( y 1 )) y 1 − c 1 ( y 1 ).
𝑦 1≥0

pi= TR-TC
mà TC=0 -> pi=TR
STACKELBERG MODEL

• Q: Will the leader make a profit at least as large as its Cournot-Nash

equilibrium profit?
• A: Yes. The leader could choose its Cournot-Nash output level,
knowing that the follower would then also choose its Cournot-Nash
output level. The leader’s profit would then be its Cournot-Nash profit.
But the leader does not have to do this, so its profit must be at least
as large as its Cournot-Nash profit.
EXERCISE 2

• The market inverse demand function is

p = a – b(y1+y2)
• The firms can produce goods at no costs.
• Firm 2 is the follower. What is its reaction function?
• What is firm 1’s profit maximization condition?
• What is the equilibrium?
ISO-PROFIT CURVES

• For firm 1, an iso-profit curve contains all the output pairs (y1,y2) giving
firm 1 the same profit level 1.
• What do iso-profit curves look like?
 Iso-Profit Curves for Firm 1
y2

With y1 fixed, y2 decreases

→ p increases
→ firm 1’s profit increases

đường iso ở càng cao thì lợi nhuận

càng thấp và ngược lại

y1
y2

Increasing profit for firm 1.

y1
y2
Q: Firm 2 chooses y2 = y2’. Where along
the line y2 = y2’ is the output level that
maximizes firm 1’s profit?
A: The point attaining the highest iso-
profit curve for firm 1. y1’ is firm 1’s
best response to y2 = y2’.
y2’

y1’ y1
y2
Q: Firm 2 chooses y2 = y2’. Where along
the line y2 = y2’ is the output level that
maximizes firm 1’s profit?
A: The point attaining the highest iso-
profit curve for firm 1. y1’ is firm 1’s
best response to y2 = y2’.
y2’

R1(y2’) y1
y2

y2”

Firm 1’s reaction curve passes through

the “tops” of firm 1’s iso-profit curves.

y2’

R1(y2”) R1(y2’) y1
 Iso-Profit Curves for Firm 2
y2

Increasing profit for firm 2.

y1
 Iso-Profit Curves for Firm 2
y2

Firm 2’s reaction curve passes through

the “tops” of firm 2’s iso-profit curves.

y2 = R2(y1)

y1
STACKELBERG MODEL
 Cuộc chiến giá cả trong thị trường độc quyền nhóm
BERTRAND MODEL

• What if firms compete using only price-setting strategies, instead of

using only quantity-setting strategies?
• Games in which firms use only price strategies and play
simultaneously are Bertrand games.
BERTRAND MODEL

• Each firm’s marginal production cost is constant at c.

• All firms simultaneously set their prices.
• Q: Is there a Nash equilibrium?
• A: Yes. Exactly one. All firms set their prices equal to the marginal cost
c. Why?
 p1>p2: DN 2 chiếm lĩnh toàn bộ thị trường-> DN 1 muốn hạ
giá xuống để chiếm lĩnh toàn bộ thị trường -> chưa đạt CB
BERTRAND MODEL thị trường, tương tự với p1<p2
CB thị trường: p1=p2=c: tại đây các DN k thể hạ giá của
mình xuống nữa

• Suppose one firm sets its price higher than another firm’s price.
• Then the higher-priced firm would have no customers.
• Hence, at an equilibrium, all firms must set the same price.
BERTRAND MODEL

• Suppose the common price set by all firm is higher than marginal cost
c.
• Then one firm can just slightly lower its price and sell to all the buyers,
thereby increasing its profit.
• The only common price which prevents undercutting is c. Hence this
is the only Nash equilibrium.
PRICE LEADERSHIP

• What if, instead of simultaneous play in pricing strategies, one firm

decides its price ahead of the others.
• This is a sequential game in pricing strategies called a price-
leadership game.
• The firm which sets its price ahead of the other firms is the price-
leader.
 giống stackelberg nhưng priceleader thì dự
PRICE LEADERSHIP đoán về giá

Firm 2 (price follower)

Firm 1 (price leader) takes this price as Firm 1 sells at the
sets the price given and chooses its residual demand
output
DN 2 chọn mức giá
bằng DN1
Leader
chooses a
combination
of price and
output that
backward induction
maximizes its
profit
PRICE LEADERSHIP

• Think of one large firm (the leader) and many competitive small firms
(the followers).
• The small firms are price-takers and so their collective supply reaction
to a market price p is their aggregate supply function Yf(p).
PRICE LEADERSHIP

• The market demand function is D(p).

• So the leader knows that if it sets a price p the quantity demanded
from it will be the residual demand
L ( p ) = D ( p ) − Yf ( p ). L(p) thực chất là y1
Yf(p) thực chất là y2
y1=y-y2
• Hence the leader’s profit function is
 L (p) = p(D(p) − Yf (p)) − c L (D(p) − Yf (p)).
PRICE LEADERSHIP

• The leader’s profit function is

 L ( p ) = p ( D ( p ) − Yf ( p )) − c L ( D ( p ) − YF ( p ))
so the leader chooses the price level p* for which profit is maximized.
• The followers collectively supply Yf(p*) units and the leader supplies
the residual quantity D(p*) - Yf(p*).
EXERCISE 3

• Assume that the demand function takes the form y = a – bp. Firm 1
(the leader) has a cost function c(y1) = y1. Firm 2 (the follower) has a
cost function c(y2) = y22/2.
• What is firm 2’s supply function?
• What is firm 1’s profit-maximizing output?