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Duopoly
![]() DuopolyIn the duopoly, the two companies work "in reaction" to each other (reaction curve = RF1 and RF2). |
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At the Cournot model the two firms "play" at the same time, each knowing the other's reaction curve. In this way, Cournot equilibrium will occur when the curves equalize. That is, a quantity supplied by firm 2 , which causes a quantity supplied response by firm 1 , which, in turn, generates the same quantity supplied by firm 2 initially - so it is a very classic Nash equilibrium. In the Stackelberg Model the lead firm has an advantage over the follower firm: it sees the follower's reaction curve and chooses a point on that curve. That is, the leading firm will offer an amount X already knowing the reaction of the follower curve, in order to maximize its profit.
Subtitle
RF = Reaction Curve
Q = Quantity
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