Study of Duopoly Between Intel and Amd

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Microeconomics
Group Project

“AMD Inside”

Study of Duopoly in
microprocessor market
( Submitted On 15-Mar-2012 )

Submitted By:
Mayank Agrawal (PGPM811_55)
Snigdha Tripathy (PGPM811_93)

Contents
1.Background3
2.Purpose3
3.Scope3
4.What is duopoly?3
5.The microprocessor market4
5.1 Which is better: Intel or AMD?4
6.How it all began – A brief history5
7.Cournot’s Model as applied to Intel and AMD.5
8.Revenues10
9.Price War: Intel Vs AMD10
9.1 'Predatory Dumping'10
10.Market Share11
11.Questions12
12.Answers:12
13.A New Entrant to change the duopoly15
13.1 Via Technologies – Cornered15
14. Latest Updates15
15. Conclusion16

1. Background

2. Purpose
The purpose of this report is to study the application of the microeconomic theory of Duopoly in a real life case. 3. Scope
This report will analyze the form and type of competition between firms in personal computer microprocessor market and the competition between two companies, Intel and AMD using the Cournot’s model of Duopoly. 4. What is duopoly?

A duopoly is a market condition in which two companies producing a similar type of product have control over the market. This is similar to monopolies in which only one company controls the market and oligopolies in which multiple companies are allowed to trade in the market. The duopoly theory looks at the interplay of two companies in a market: each firm's prices and production are set by the decisions of the other. Webster defines duopoly as, an oligopoly limited to two sellers. The concept of a duopoly was proposed by French economist Antoine Augustin Cournot (1801-1877) and we use the Cournot’s model to study the same. Features of a duopoly as per Cournot’s model.

1. Two firms competing with each other. Price leadership by the larger of the two firms may exist – the smaller firm follows the price lead of the larger one. 2. Homogenous good
3. High barriers to entry.
4. The output of the other firm is assumed to be fixed
5. Firms decide simultaneously how much to produce.
Market Structure

Perfect
Competition
Pure Monopoly
Monopolistic Competition
Oligopoly
Duopoly
Monopoly

The further right on the scale, the greater the degree
of monopoly power exercised by the firm.

5. The microprocessor market

As concerning the microprocessor industry, it is well known that Intel and AMD are the two world market leaders in the production of microprocessors. The history of computer processors is replete with the battle between these two giants. These are the two behemoths of the computer processor industry, and every single machine is using one of these two chips. With each passing year, both these companies are constantly trying to outdo each other and eat into the others market share, but at the end of each financial year it seems like nothing have changed, as both of them are firmly sticking to their guns. This battle is going to continue for many more years, and this can only be advantageous to the consumers. The microprocessor market can be defined as an oligopoly with an incumbent and a fringe firm, since there are no other large microprocessor producers, and about 98.6% of the total market share is held by the 2 companies.

5.1 Which is better: Intel or AMD?
Technology has progressed so much today that it is possible for us to change our processors easily, and still use the same hardware as before. This has made the battle between AMD vs. Intel all the more intense because there is no such thing as brand loyalty here. The customer will only use that processor which is better and faster, so this is a case of true competition based on innovation and product features. It’s rather unfortunate that until fairly recently most people associated the Personal Computer with an Intel chip, but this view has now changed. Intel has the edge as far as resources,...
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