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On the endogeneity of Cournot, Bertrand, and Stackelberg competition in oligopolies

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  • Breitmoser, Yves

Abstract

In many industries, firms pre-order input and forward sell output prior to the actual production period. It is known that forward buying input induces a “Cournot–Stackelberg endogeneity” (both Cournot and Stackelberg outcomes may result in equilibrium) and forward selling output induces a convergence to the Bertrand solution. I analyze the generalized model where firms pre-order input and forward sell output. First, I consider oligopolists producing homogenous goods, generalize the Cournot–Stackelberg endogeneity to oligopoly, and show that it additionally includes Bertrand in the generalized model. This shows that the “mode of competition” between firms may be entirely endogenous. Second, I consider duopolies producing heterogenous goods. The set of equilibrium outcomes is characterized and shown not to contain the Bertrand solution anymore. Yet, forward sales increase welfare also in this case, notably even when goods are complements.

Suggested Citation

  • Breitmoser, Yves, 2012. "On the endogeneity of Cournot, Bertrand, and Stackelberg competition in oligopolies," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 16-29.
  • Handle: RePEc:eee:indorg:v:30:y:2012:i:1:p:16-29
    DOI: 10.1016/j.ijindorg.2011.04.007
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    References listed on IDEAS

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    Cited by:

    1. Ino Hiroaki & Matsumura Toshihiro, 2016. "Welfare-Improving Effect of a Small Number of Followers in a Stackelberg Model," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 16(1), pages 243-265, January.
    2. Julio B. CLEMPNER & Alexander S. POZNYAK, 2016. "Analyzing An Optimistic Attitude For The Leader Firm In Duopoly Models: A Strong Stackelberg Equilibrium Based On A Lyapunov Game Theory Approach," ECONOMIC COMPUTATION AND ECONOMIC CYBERNETICS STUDIES AND RESEARCH, Faculty of Economic Cybernetics, Statistics and Informatics, vol. 50(4), pages 41-60.
    3. Breitmoser, Yves, 2012. "Allaz-Vila competition with non-linear costs or demands," MPRA Paper 41772, University Library of Munich, Germany.
    4. Breitmoser, Yves, 2013. "Increasing marginal costs are strategically beneficial in forward trading," Economics Letters, Elsevier, vol. 119(2), pages 109-112.

    More about this item

    Keywords

    Forward sales; Capacity accumulation; Cournot; Stackelberg; Bertrand;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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