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Bertrand versus Cournot revisited

  • Cheng-Zhong Qin

    (Department of Economics, University of California, Santa Barbara, CA 93106, USA)

  • Charles Stuart

    (Department of Economics, University of California, Santa Barbara, CA 93106, USA)

Bertrand criticized Cournot's analysis of the competitive process, arguing that firms should be seen as playing a strategy of setting price below competitors' prices (henceforth, the Bertrand strategy) instead of a strategy of accepting the price needed to sell an optimal quantity (the Cournot strategy). We characterize Nash equilibria in a generalized model in which firms choose among Cournot and Bertrand strategies. Best responses always exist in this model. For the duopoly case, we show that iterated best responses converge under mild assumptions on initial states either to Cournot equilibrium or to an equilibrium in which only one firm plays the Bertrand strategy with price equal to marginal cost and that firm has zero sales.

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Article provided by Springer in its journal Economic Theory.

Volume (Year): 10 (1997)
Issue (Month): 3 ()
Pages: 497-507

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Handle: RePEc:spr:joecth:v:10:y:1997:i:3:p:497-507
Note: Received: December 11, 1995; revised version October 2, 1996
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