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

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  • Rupayan Pal

    (Indira Gandhi Institute of Development Research)

Abstract

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.

Suggested Citation

  • Rupayan Pal, "undated". "The Cournot-Bertrand profit differential: A Reversal result in network goods duopoly," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2013-014, Indira Gandhi Institute of Development Research, Mumbai, India.
  • Handle: RePEc:ind:igiwpp:2013-014
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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2013-014.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Network externalities; Cournot; Bertrand; Profit ranking; Endogenous mode of competition;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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