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Unrestricted Duopoly Competition: Equilibrium and Survival


  • Jaideep Roy

    (Trinity College, Dublin)

  • Torben Tranæs

    (Danish National Institute of Social Research)


This paper is inspired by the ever lasting discussions over Bertrand's (1883) price-deviation critique of Cournot's (1838) duopoly analysis. We consider a homogenous good duopoly with constant marginal costs and no capacity constraints, but we allow firms to set either a quantity, a price, or both. We derive two main results. First, this model has two duopoly equilibria, one where firms commit only to prices (Bertrand behavior) and one where they commit only to quantities (Cournot behavior), and it has equilibria supporting a perfect contestable market where one firm supplies the entire market at a price equal to marginal costs. Second, the Cournot behavior is best fit for survival in terms of evolutionary stability. This provides an argument for the existence of quantity-commitment institutions like auctions in oligopolistic markets for homogenous goods.

Suggested Citation

  • Jaideep Roy & Torben Tranæs, 2002. "Unrestricted Duopoly Competition: Equilibrium and Survival," CIE Discussion Papers 2002-01, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  • Handle: RePEc:kud:kuieci:2002-01

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    References listed on IDEAS

    1. Majerus, David W., 1988. "Price vs. quantity competition in oligopoly supergames," Economics Letters, Elsevier, vol. 27(3), pages 293-297.
    2. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Oxford University Press, vol. 38(1), pages 1-12.
    3. Rothschild, R., 1992. "On the sustainability of collusion in differentiated duopolies," Economics Letters, Elsevier, vol. 40(1), pages 33-37, September.
    4. Deneckere, R., 1983. "Duopoly supergames with product differentiation," Economics Letters, Elsevier, vol. 11(1-2), pages 37-42.
    5. L. Lambertini & C. Schultz, 2000. "Price vs Quantity in a Repeated Differentiated Duopoly," Working Papers 379, Dipartimento Scienze Economiche, Universita' di Bologna.
    6. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    7. Albaek, Svend & Lambertini, Luca, 1998. "Collusion in differentiated duopolies revisited," Economics Letters, Elsevier, vol. 59(3), pages 305-308, June.
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    More about this item


    homegenous duopoly; Cournot vs. Bertrand; price and quantity competition;

    JEL classification:

    • A1 - General Economics and Teaching - - General Economics
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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