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Bertrand versus Cournot competition in a downstream mixed oligopoly with foreign ownership

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  • Ki‐Dong Lee
  • Sunghee Choi
  • Kangsik Choi

Abstract

Focusing on foreign ownership in the private firm, we examine the Cournot‐Bertrand comparison in a mixed oligopolistic market with vertical market structure. We have found that if public and private firms were charged with uniform price for their inputs, then Cournot‐Bertrand ranking in market outcomes confirms those obtained by Ghosh and Mitra (2010). This implies that under uniform pricing in the upstream sector, the vertical market structure does not have substantial influences on Cournot‐Bertrand ranking. However, if discriminatory pricing is adopted, firm's profits, output, and social welfare are often reversed to those obtained from uniform pricing in the upstream sector. Given the closeness of products, if the share of foreign ownership is sufficiently low, social welfare in Cournot competition can exceed that of Bertrand competition, contrasting with the standard welfare ranking that Bertrand welfare is strictly higher than Cournot. This implies that Cournot competition can be more socially desirable than Bertrand in mixed oligopoly with vertical market structure if discriminatory pricing scheme is adopted by foreign upstream monopolists.

Suggested Citation

  • Ki‐Dong Lee & Sunghee Choi & Kangsik Choi, 2020. "Bertrand versus Cournot competition in a downstream mixed oligopoly with foreign ownership," Bulletin of Economic Research, Wiley Blackwell, vol. 72(2), pages 101-120, April.
  • Handle: RePEc:bla:buecrs:v:72:y:2020:i:2:p:101-120
    DOI: 10.1111/boer.12212
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    References listed on IDEAS

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