The market for melons: Cournot competition with unobservable qualities
AbstractTwo firms produce different qualities at possibly different, constant marginal costs. They compete in quantities on a market where buyers only observe the average quality supplied. The model is a generalization of the standard Cournot duopoly, which corresponds to the special case where the two qualities are equal. When the quality differential is large, the firms' output levels are not always strategic substitutes. There can be no, or up to three pure-strategy equilibria. Yet, as long as the cost differential is not extreme, there always exists a stable duopolistic equilibrium. In that sense, strategic quantity-setting helps prevent market unraveling.
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 617.
Length: 49 pages
Date of creation: 30 Dec 2005
Date of revision: 18 Jan 2006
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Cournot competition; quality; duopoly; asymmetric information; Nash equilibrium;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-24 (All new papers)
- NEP-COM-2006-01-24 (Industrial Competition)
- NEP-IND-2006-01-24 (Industrial Organization)
- NEP-MIC-2006-01-24 (Microeconomics)
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