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Reversal of Bertrand-Cournot Rankings in the Presence of Welfare Concerns

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  • Arghya Ghosh
  • Manipushpak Mitra

Abstract

We revisit the comparison between Bertrand and Cournot competition in a symmetric differentiated oligopoly where each firm maximizes a weighted average of its own profit and welfare. Under very general specifications, Bertrand competition yields higher prices and profits, and lower quantities, consumer surplus, and welfare than Cournot when the weight on profit is lower than a threshold value. The threshold weight on profit (welfare) can be arbitrarily close to unity (zero) for both quadratic and CES utilities. Particularly striking is the following asymptotic result for CES: irrespective of the degree of substitutability, the threshold weight on profit tends to unity as the number of firms approaches infinity.

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  • Arghya Ghosh & Manipushpak Mitra, 2014. "Reversal of Bertrand-Cournot Rankings in the Presence of Welfare Concerns," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 170(3), pages 496-519, September.
  • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201409)170:3_496:robrit_2.0.tx_2-
    DOI: 10.1628/093245613X13946181776030
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    Cited by:

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    9. Haraguchi, Junichi & Matsumura, Toshihiro, 2018. "Government-leading welfare-improving collusion," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 363-370.
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    13. Li, Wen-na & Elsadany, A.A. & Zhou, Wei & Zhu, Yan-lan, 2021. "Global Analysis, Multi-stability and Synchronization in a Competition Model of Public Enterprises with Consumer Surplus," Chaos, Solitons & Fractals, Elsevier, vol. 143(C).
    14. Fanti, Luciano & Buccella, Domenico, 2018. "Corporate social responsibility and the choice of price versus quantities," Japan and the World Economy, Elsevier, vol. 48(C), pages 71-78.
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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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