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On Welfare under Cournot and Bertrand Competition in Differentiated Oligopolies

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  • Judy Hsu
  • X. Wang

    ()

Abstract

Häckner (2000, Journal of Economic Theory 93, 233–239) shows that in a differentiated oligopoly with more than two firms, prices may be higher under Bertrand competition than under Cournot competition, implying that the classical result of Singh and Vives (1984, Rand Journal of Economics, 15, 546–554) that Bertrand prices are always lower than Cournot prices is sensitive to the duopoly assumption. Häckner (2000, Journal of Economic Theory, 93, 233–239), however, leaves unanswered the important question of whether welfare may be lower under price competition. This note shows that in Häckner’s model both consumer surplus and total surplus are higher under price competition than under quantity competition, regardless of whether goods are substitutes or complements. Copyright Springer 2005

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File URL: http://hdl.handle.net/10.1007/s11151-005-1753-7
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Bibliographic Info

Article provided by Springer in its journal Review of Industrial Organization.

Volume (Year): 27 (2005)
Issue (Month): 2 (09)
Pages: 185-191

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Handle: RePEc:kap:revind:v:27:y:2005:i:2:p:185-191

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Web page: http://www.springerlink.com/link.asp?id=100336

Related research

Keywords: Bertrand; Cournot; differentiated oligopoly; welfare;

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References

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  1. Hackner, Jonas, 2000. "A Note on Price and Quantity Competition in Differentiated Oligopolies," Journal of Economic Theory, Elsevier, vol. 93(2), pages 233-239, August.
  2. Dixit, Avinash K., 1978. "A Model of Duopoly Suggesting a Theory of Entry Barriers," The Warwick Economics Research Paper Series (TWERPS) 125, University of Warwick, Department of Economics.
  3. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
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Citations

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Cited by:
  1. Jurgan, Jens, 2009. "Conjectural cost variations in a differentiated good oligopoly," W.E.P. - Würzburg Economic Papers 80, University of Würzburg, Chair for Monetary Policy and International Economics.
  2. Ming Chang, 2010. "An Asymmetric Oligopolist can Improve Welfare by Raising Price," Review of Industrial Organization, Springer, vol. 36(1), pages 75-96, February.
  3. Luis C. Corchon & Galina Zudenkova, 2008. "Computing welfare losses from data under imperfect competition with heterogeneous goods," Economics Working Papers we082616, Universidad Carlos III, Departamento de Economía.
  4. Wang, X. Henry & Zhao, Jingang, 2007. "Welfare reductions from small cost reductions in differentiated oligopoly," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 173-185, February.
  5. Sebastian von Engelhardt, 2010. "Quality Competition or Quality Cooperation? License-Type and the Strategic Nature of Open Source vs. Closed Source Business Models," Jena Economic Research Papers 2010-034, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.

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