Edgeworth Duopoly Model: Assumptions, Diagram with Explanation
EDGEWORTH DUOPOLY MODEL F. Y. Edgeworth, a famous French economist criticized Cournot’s assumption that each duopolist believes that his rival will continue to produce the same output irrespective of what he himself might produce. Edgeworth’s model follows Bertrand’s assumption that each duopolist believes that his rival will keep his price constant irrespective of what price he himself sets. With this assumption, and taking the example of Cournot’s “mineral wells”, Edgeworth showed that no determinate equilibrium would be reached in duopoly. Assumptions: 1- It has two firms. 2- It is not essential in this model that the product of duopolists should be perfectly homogenous. This model will be applicable for slightly differentiated product or we can say close substitute also. However, in our analysis below we assume that the products of the two duopolists are perfectly homogeneous. 3- Both firms compete with price...