Pricing under Duopoly -

Chamberlin Model
Understanding the strategic pricing dynamics in duopoly markets is
crucial for businesses. It involves analyzing the interdependence and
competitive strategies of two major firms.
Overview of Chamberlin Model
Market Structure Product Differentiation

The Chamberlin Model explains the behavior of It focuses on the effect of product
firms in a non-collusive duopoly where both differentiation on the pricing and output
firms are competing within the same market. decisions made by competing firms.
Assumptions of the Chamberlin Model

1 Product 2 Firm Interdependence 3 Independent Output

Heterogeneity
The model assumes that
the products of the two
firms are not perfect
substitutes for each
other.
It assumes that the The model assumes that
decisions of one firm firms decide on their
directly affect the profits output levels
of the other. independently.
Pricing Strategies in Duopoly
Collusive Pricing
This strategy involves the two firms
working together to maximize joint
profits through coordinated pricing
decisions.
Price Leadership
One firm sets the price and the other
follows, often used when there's a clear
leader.

Strategic Interdependence
Both firms carefully consider their rival's potential responses when setting prices.
Equilibrium in the Chamberlin Model
Stable…
Stable Equilibrium
The model aims to achieve a Nash Equilibrium, a
state where no player has an incentive to change
their strategy unilaterally.
Price…
Price Competition
It analyzes the conditions where intense price
competition or strategic pricing behavior exists.
Impact of Market Conditions on Pricing
Supply and Demand
1 Market forces of supply and demand significantly influence the pricing
strategies adopted by the duopolists.

Regulatory Environment
2 Antitrust laws and market regulations can impact pricing behavior and
market conduct of duopolies.
Criticisms of the Chamberlin Model
1 Overlooking Collusion
The model doesn't fully address the possibility of secret collusion between
duopolistic firms.

2 Static Market Assumptions

It has been criticized for not accounting for dynamic market changes and
innovations.

3 Complexity Issues
Some criticize the model for being overly complex, making it less accessible
for practical applications.
Conclusion and Key Takeaways
Duopoly Behavior Interdependence and strategic behavior are at
the core of duopoly dynamics.

Real-World Examples Illustrate how duopolies operate in various

industries and the implications of different
strategies.