Revenue Maximizing Duopoly

Abstract

Oligopolists in our analyses so far were unconstrained profit maximizers. W.J.Baumol(1958, 1959) maintains that revenue (or sales) maximization under a constraint of attainment of minimum necessary profit is more commonly observed among large firms than unconstrained profit maximization, and has formulated a model of revenue maximization under minimum profit constraint. Though Baumol is well aware of interdependence among firms, he has ignored this in his analysis. To cite from his book: “I shall take the position that in day to day decision making, management often acts explicitly or implicitly on the premise that its decisions will produce no changes in the behavior of those with whom they are competing. Of course, I am not arguing that management inhabits a fool’s paradise in which interdependence is never considered. In making its more radical decisions, such as launching of a major advertizing campaign or the introduction of a radically new line of products, management usually does not consider the probable competitive response”.^l)