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The Cournot-Bertrand profit differential: A Reversal result in network goods duopoly

  • Rupayan Pal


    (Indira Gandhi Institute of Development Research)

We revisit the classic profit-ranking of Cournot and Bertrand equilibria and the issue of endogenous choice of a price or a quantity contract, but for a network goods duopoly. We show that, if network externalities are strong (weak), each firm earns higher (lower) profit under Bertrand competition than under Cournot competition. Therefore, unless network externalities are weak, the classic profit-ranking is reversed. When modes of product market competition are endogenously determined, Cournot equilibrium always constitutes the subgame perfect Nash equilibrium (SPNE). However, a prisoners's dilemma type of situation arises and the SPNE is Pareto inefficient, unless network externalities are weak.

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Paper provided by Indira Gandhi Institute of Development Research, Mumbai, India in its series Indira Gandhi Institute of Development Research, Mumbai Working Papers with number 2013-014.

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Length: 17 pages
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Handle: RePEc:ind:igiwpp:2013-014
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  17. Scrimitore, Marcella, 2013. "Price or quantity? The strategic choice of subsidized firms in a mixed duopoly," Economics Letters, Elsevier, vol. 118(2), pages 337-341.
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