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Comparing Cournot and Bertrand Equilibria in a Differentiated Duopoly with Product R&D

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  • George Symeonidis

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Abstract

This paper compares Bertrand and Cournot equilibria in a differentiated duopoly with substitute goods and product R&D. I find that R&D expenditure, prices and firms� net profits are always higher under quantity competition than under price competition. Furthermore, output, consumer surplus and total welfare are higher in the Bertrand equilibrium than in the Cournot equilibrium if either R&D spillovers are weak or products are sufficiently differentiated. If R&D spillovers are strong and products are not too differentiated, then output, consumer surplus and total welfare are lower in the Bertrand case than in the Cournot case. Thus a key finding of the paper is that there are circumstances where quantity competition can be more beneficial than price competition both for consumers and for firms.

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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 539.

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Date of creation: 10 May 2002
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Handle: RePEc:esx:essedp:539

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  1. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
  2. Bester, Helmut & Petrakis, Emmanuel, 1993. "The incentives for cost reduction in a differentiated industry," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 519-534.
  3. 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.
  4. Amir, Rabah, 2000. "Modelling imperfectly appropriable R&D via spillovers," International Journal of Industrial Organization, Elsevier, vol. 18(7), pages 1013-1032, October.
  5. Symeonidis, George, 1999. "Cartel stability in advertising-intensive and R&D-intensive industries," Economics Letters, Elsevier, vol. 62(1), pages 121-129, January.
  6. 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.
  7. Qiu, Larry D., 1997. "On the Dynamic Efficiency of Bertrand and Cournot Equilibria," Journal of Economic Theory, Elsevier, vol. 75(1), pages 213-229, July.
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