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On Welfare under Cournot and Bertrand Competition in Differentiated Oligopolies

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Abstract

Hackner (2000) 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) that Bertrand prices are always lower than Cournot prices is sensitive to the duopoly assumption. Hackner (2000), however, leaves unanswered the important question of whether welfare may be lower under price competition. This note shows that in Hackners model both consumer surplus and total surplus are higher under price competition than under quantity competition regardless of whether goods are substitutes or complements.

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File URL: http://economics.missouri.edu/working-papers/2005/wp0514_wang.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Missouri in its series Working Papers with number 0514.

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Length: 10 pgs.
Date of creation: 15 Jun 2005
Date of revision:
Handle: RePEc:umc:wpaper:0514

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Keywords: Bertrand; Cournot; Differentiated oligopoly; Welfare;

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References

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  1. Häckner, Jonas, 1999. "A Note on Price and Quantity Competition in Differentiated Oligopolies," Research Papers in Economics 1999:9, Stockholm University, Department of Economics.
  2. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring.
  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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Cited by:
  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. Ming Chang, 2010. "An Asymmetric Oligopolist can Improve Welfare by Raising Price," Review of Industrial Organization, Springer, vol. 36(1), pages 75-96, February.

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