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Bilateral duopoly efficiency. Most of the products sold on the final market
are the result of several production stages. For instance ...
... era could be seen as Soviet American duopoly with the ... a number of agreements- numbering
to 234 bilateral and 57 ... but would also hamper the efficiency of other ...
... where transportation began to be governed by bilateral agreements that ... entrepreneurial
activity, and brought difficulties to achieve efficiency and socially ...
Submitted by omaddalena on February 28, 2006
Category: Business
Words: 1957 | Pages: 8
Views: 150
Popularity Rank: 73,397
Average Member Grade: N/A (Add a Comment / Grade this Paper)
Most of the products sold on the final market are the result of several production stages. For instance, the food products are firstly packed and branded, then distributed to the stores and retailers and finally sold to the final consumers.
The purpose of this essay is to compare the performance of two different market structures in an industry characterized by two production stages: an upstream and a downstream one.
For the sake of clarity, we will assume that the production of one unit of output at the downstream stage requires the use of one unit of output from the upstream stage. As a consequence, the downstream output Y will equal the upstream one.
The two market structures taken under examination are a bilateral duopoly and a vertically integrated monopoly.
A bilateral duopoly is a market structure where there are two firms at each stage of production, whereas in a vertically integrated monopoly there is just one firm carrying out both processes.
Throughout the essay it will be assumed that consumer demand in the final market is a linear function of the final output Y and is described by the linear equation:
p=a-bY (a), where a is the consumer reservation price.
The performance, or efficiency, of the two models will be measured by the total ‘welfare' they entail. From society's point of view, the total gain is the sum of the consumer surplus and producer surplus, which is known as total surplus.
Consumer surplus is defined as "the difference between what a consumer is willing to pay and what she has to pay" (Katz and Rosen, 1998, p. 110) and is calculated simply as the area under the demand curve and above the market price.
FIGURE 1
The shaded area in FIGURE 1 indicates the consumer surplus CS and is given by the formula: CS=(a-p)Y/2 (b).
Instead, the producer surplus PS is simply the producer's...
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