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Efficiency of Bertrand and Cournot: A Two Stage Game

In: Dynamic Games: Theory and Applications

Author

Listed:
  • Michèle Breton
  • Abdalla Turki

Abstract

We consider a differentiated duopoly where firms invest in research and development (R&D) to reduce their production cost. The objective of this study is to derive and compare Bertrand and Cournot equilibria, and then examine the robustness of the literature's results, especially those of Qiu (1997). We find that The main results of this study are as follows: (a) Bertrand competition is more efficient if R&D productivity is low, industry spillovers are weak, or products are very different. (b) Cournot competition is more efficient if R&D productivity is high and R&D spillovers and products' degree of substitutability are not very small. (c) Cournot competition may lead to higher Outputs, higher consumer surpluses and lower prices, provided that R&D productivity is very high and spillovers and degree of substitutability of firms' products are moderate to high, (d) Cournot competition results in higher R&D Investments compared to Bertrand's. These results show that the relative efficiencies of Bertrand and Cournot equilibria are sensitive to the suggested specifications, and hence far from being robust.

Suggested Citation

  • Michèle Breton & Abdalla Turki, 2005. "Efficiency of Bertrand and Cournot: A Two Stage Game," Springer Books, in: Alain Haurie & Georges Zaccour (ed.), Dynamic Games: Theory and Applications, chapter 0, pages 161-173, Springer.
    • Handle: RePEc:spr:sprchp:978-0-387-24602-4_8
    DOI: 10.1007/0-387-24602-9_8
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