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Bertrand vs. Cournot equilibrium with risk averse firms and cost uncertainty

Author

Listed:
  • Harrison Cheng

    () (Department of Economics, University of Southern California, University Park, Los Angeles, CA, 90089-0253, USA)

Abstract

In an oligopoly game with cost uncertainty and risk averse firms, we show that Bertrand and Cournot equilibrium have different convergence properties when the market is replicated. The Cournot equilibrium price converges to the competitive price. Under very typical and somewhat general conditions, the highest Bertrand equilibrium price converges to one higher than the competitive equilibrium. We also give examples to show how to compute the limit of the highest Bertrand equilibrium prices and illustrate the ideas of the proof. We explore conditions under which the supply curve is upward sloping, a useful condition for our results.

Suggested Citation

  • Harrison Cheng, 2002. "Bertrand vs. Cournot equilibrium with risk averse firms and cost uncertainty," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 20(3), pages 555-577.
  • Handle: RePEc:spr:joecth:v:20:y:2002:i:3:p:555-577
    Note: Received: April 20, 2000; revised version: May 10, 2001
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    Cited by:

    1. repec:mhr:jinste:urn:sici:0932-4569(201809)174:3_421:ccrq_2.0.tx_2-d is not listed on IDEAS
    2. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2018. "Can Competition Reduce Quality?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 174(3), pages 421-447, September.
    3. Xing Gao & Weijun Zhong, 2016. "Economic incentives in security information sharing: the effects of market structures," Information Technology and Management, Springer, vol. 17(4), pages 361-377, December.
    4. Jim Y. Jin & Shinji Kobayashi, 2016. "Impact of risk aversion and countervailing tax in oligopoly," Annals of Finance, Springer, vol. 12(3), pages 393-408, December.

    More about this item

    Keywords

    Market size; Bertrand competition; Cournot competition; risk averse firms; Cost uncertainty.;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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