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Cournot, Bertrand or Chamberlin: Toward a Reconciliation

Author

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  • PARENTI, Mathieu
  • SIDOROV, Alexander V.
  • THISSE, Jacques-François
  • ZHELOBODKO, Evgeny V.

Abstract

The purpose of this paper is to provide a comparison of three types of competition in a differentiated industry: Cournot, Bertrand, and monopolistic competition. This is accomplished in an economy involving one sector and a population of consumers endowed with separable preferences and a given number of labor units. When firms are free to enter the market, monopolistically competitive firms charge lower prices than oligopolistic firms, while the mass of varieties provided by the market is smaller under the former than the latter. If the economy is sufficiently large, Cournot, Bertrand and Chamberlin solutions converge toward the same market outcome, which may be a competitive or a monopolistically competitive equilibrium, depending on the nature of preferences.

Suggested Citation

  • PARENTI, Mathieu & SIDOROV, Alexander V. & THISSE, Jacques-François & ZHELOBODKO, Evgeny V., 2016. "Cournot, Bertrand or Chamberlin: Toward a Reconciliation," CORE Discussion Papers 2016005, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2016005
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    References listed on IDEAS

    as
    1. Jaskold Gabszewicz, Jean & Vial, Jean-Philippe, 1972. "Oligopoly "A la cournot" in a general equilibrium analysis," Journal of Economic Theory, Elsevier, vol. 4(3), pages 381-400, June.
    2. Roberts, John & Sonnenschein, Hugo, 1977. "On the Foundations of the Theory of Monopolistic Competition," Econometrica, Econometric Society, vol. 45(1), pages 101-113, January.
    3. d'Aspremont, Claude & Dos Santos Ferreira, Rodolphe & Gerard-Varet, Louis-Andre, 1996. "On the Dixit-Stiglitz Model of Monopolistic Competition," American Economic Review, American Economic Association, vol. 86(3), pages 623-629, June.
    4. Behrens, Kristian & Murata, Yasusada, 2007. "General equilibrium models of monopolistic competition: A new approach," Journal of Economic Theory, Elsevier, vol. 136(1), pages 776-787, September.
    5. William Novshek, 1980. "Cournot Equilibrium with Free Entry," Review of Economic Studies, Oxford University Press, vol. 47(3), pages 473-486.
    6. Evgeny Zhelobodko & Sergey Kokovin & Mathieu Parenti & Jacques-François Thisse, 2011. "Monopolistic competition in general equilibrium: Beyond the CES," PSE Working Papers halshs-00566431, HAL.
    7. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    8. Norman, George & Thisse, Jacques-Francois, 1996. "Product Variety and Welfare under Tough and Soft Pricing Regimes," Economic Journal, Royal Economic Society, vol. 106(434), pages 76-91, January.
    9. Joan Robinson, 1934. "What is Perfect Competition?," The Quarterly Journal of Economics, Oxford University Press, vol. 49(1), pages 104-120.
    10. Novshek, William & Chowdhury, Prabal Roy, 2003. "Bertrand equilibria with entry: limit results," International Journal of Industrial Organization, Elsevier, vol. 21(6), pages 795-808, June.
    11. Vives, Xavier, 1985. "On the efficiency of Bertrand and Cournot equilibria with product differentation," Journal of Economic Theory, Elsevier, vol. 36(1), pages 166-175, June.
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    More about this item

    Keywords

    Cournot competition; Bertrand competition; monopolistic competition; free entry;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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