Have We Done with the Cournot-Bertrand Debate? or How the History of Economic Analysis Can Spur Economic Theorising

It has not yet been sufficiently recognized that economic theory and history of economic analysis are mutually enhancing fields. As an illustration, take the Cournot-Bertrand debate, conventionally viewed as opposing two types of competitors’ strategies, quantities vs. prices, an opposition that has been at the core of the theory of industrial organization in the last fifty years. For the historian though, who takes the time to read the original texts, the debate appears rather as opposing two types of competitive conduct, accommodative vs. fierce. The theorist can in turn use the historian’s lenses to design a synthetic Cournot-Bertrand game of quantity-price competition with varying competitive toughness. Among the equilibrium outcomes of this game, we find the Stackelberg quantity and price equilibrium outcomes. Again, taking the time to read the original text, we discover that Stackelberg was in fact considering the opposition of two types of competitive conduct (dependent vs. independent) rather than a timing opposition (last vs. first mover), as usually admitted. And we further discover his concept of market form stability based on two conditions: (a) firms act optimally given the adopted competitive conduct, and (b) they do not want to deviate from that conduct. By referring to the Cournot-Bertrand game, this concept suggests a selection criterion in the set of equilibria (which by definition satisfy condition (a) for stability): according to condition (b), retain only those that are characterized, for each competitor, by an optimal competitive toughness given the others’ competitive toughness. In this story, the historian’s lenses and the theorist’s tools produce jointly a deeper understanding of past economists’ texts and more powerful concepts to grasp reality.