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On the endogeneity of Cournot, Bertrand, and Stackelberg competition in oligopolies

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  • Breitmoser, Yves

Abstract

In many industries, firms pre-order input and forward sell output prior to the actual production period. It is known that forward buying input induces a “Cournot–Stackelberg endogeneity” (both Cournot and Stackelberg outcomes may result in equilibrium) and forward selling output induces a convergence to the Bertrand solution. I analyze the generalized model where firms pre-order input and forward sell output. First, I consider oligopolists producing homogenous goods, generalize the Cournot–Stackelberg endogeneity to oligopoly, and show that it additionally includes Bertrand in the generalized model. This shows that the “mode of competition” between firms may be entirely endogenous. Second, I consider duopolies producing heterogenous goods. The set of equilibrium outcomes is characterized and shown not to contain the Bertrand solution anymore. Yet, forward sales increase welfare also in this case, notably even when goods are complements.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 30 (2012)
Issue (Month): 1 ()
Pages: 16-29

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Handle: RePEc:eee:indorg:v:30:y:2012:i:1:p:16-29

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Web page: http://www.elsevier.com/locate/inca/505551

Related research

Keywords: Forward sales; Capacity accumulation; Cournot; Stackelberg; Bertrand;

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References

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Cited by:
  1. Breitmoser, Yves, 2013. "Increasing marginal costs are strategically beneficial in forward trading," Economics Letters, Elsevier, vol. 119(2), pages 109-112.
  2. Breitmoser, Yves, 2012. "Allaz-Vila competition with non-linear costs or demands," MPRA Paper 41772, University Library of Munich, Germany.

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