Bertrand versus Cournot revisited
AbstractBertrand criticized Cournot's analysis of the competitive process, arguing that firms should be seen as playing a strategy of setting price below competitors' prices (henceforth, the Bertrand strategy) instead of a strategy of accepting the price needed to sell an optimal quantity (the Cournot strategy). We characterize Nash equilibria in a generalized model in which firms choose among Cournot and Bertrand strategies. Best responses always exist in this model. For the duopoly case, we show that iterated best responses converge under mild assumptions on initial states either to Cournot equilibrium or to an equilibrium in which only one firm plays the Bertrand strategy with price equal to marginal cost and that firm has zero sales.
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 10 (1997)
Issue (Month): 3 ()
Note: Received: December 11, 1995; revised version October 2, 1996
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Find related papers by JEL classification:
- B13 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Stockholm School)
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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- Tanaka, Yasuhito, 2001. "Profitability of price and quantity strategies in an oligopoly," Journal of Mathematical Economics, Elsevier, vol. 35(3), pages 409-418, June.
- Wu, Xin-wang & Zhu, Quan-tao & Sun, Laixiang, 2012. "On equivalence between Cournot competition and the Kreps–Scheinkman game," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 116-125.
- Massimo A. De Francesco, 2001. "On stability of Bertrand-Nash equilibrium in a simple model of the labour market," Economics Bulletin, AccessEcon, vol. 3(19), pages 1-10.
- Tasnadi, Attila, 2006. "Price vs. quantity in oligopoly games," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 541-554, May.
- Pascal Billand & Christophe Bravard, 2006. "Les modèles de comportements adaptatifs appliqués à l'oligopole de Cournot," Post-Print ujm-00121658, HAL.
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