Abstract
The paper provides the analysis of game theory models application to identify duopoly market equilibrium (quantities sold and market prices), to evaluate and compare the results of enterprises in a market. The purpose of the analysis is to determine to what extent theoretical models correspond to real life, that is how reliable they are in supporting and estimating decisions of duopoly companies, fortifying market prices and quantities sold, evaluating company's competing positions and possibilities for decision co‐ordination. To describe discrete strategies equilibrium the “Prisoner's Dilemma” model is applied to a hypothetic market entrance game with possible side payments. Further analysis of the market entrance game incorporates mixed strategies based “Matching Pennies” model in case discrete strategies equilibrium does not exist. Continuous strategies are described analyzing hypothetic duopoly by applying Cournot, Stackelberg and Bertrand models. The first and the second mover advantage issues are raised comparing outcomes of dynamic Stackelberg and Bertrand games for a leader and a follower. Stability and utility of cartel agreement for its participants is mathematically supported with the help of a multi‐step repeated Cournot game. Having described, compared and applied the main game theory models to artificial duopoly market situations, the author passes over to the comparative analysis of the models’ weaknesses and problems related to their practical application.
Highlights
Among all classic market structure models oligopoly models are the ones that attract the most of scientists’ attention in recent years
The problem of the article is the practical application of game theory models to analyze a real duopoly market
The spectrum of possible results may be supported mathematically, but the main problem of practical application of game theory is associated with the choice of exact model to analyze the exact market situation together with numerous assumptions of each model, making the theoretical results stay far from practical evidence
Summary
Among all classic market structure models (pure competition, monopoly, oligopoly and monopolistic competition) oligopoly models are the ones that attract the most of scientists’ attention in recent years. Application of game theory for duopoly market analysis ciples of the Theory of Wealth”, applies mathematical models for analyzing market demand and production costs, provides profit maximization conditions for different types of market structures and presents the classic duopoly model, named in his honour. The author of another famous oligopoly model is a French scientist as well – J. The problem of the article is the practical application of game theory models to analyze a real duopoly market. The technique of applying theoretical models to hypothetic market situations accompanied by non-complicated mathematical calculations is used in the article to support the author’s arguments and conclusions
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