Duopsony models with consistent conjectural variations

Abstract

In this note we develop a consistent conjectural variation model that generalizes Bresnahan's (1981) results to a duopoly-duopsony setting. This is the first duopsony model in which firms are constrained to have consistent conjectural variations, and two interesting results emerge. First, Bertrand conjectures occur when inputs are homogeneous and when input demand functions are horizontal. Second, the consistent conjectures equilibrium approaches Cournot when input demand functions are vertical or when the firm is a monopolist-monopsonist. This implies that firms will behave more competitively in a duopsony setting as inputs and outputs become more homogeneous and as input demand functions become relatively more elastic.