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The Cournot-Bertrand profit differential in a differentiated duopoly with unions and labour decreasing returns

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  • Luciano Fanti
  • Nicola Meccheri

Abstract

This paper compares Cournot and Bertrand equilibria in a differentiated duopoly (with imperfect substitutes), total wage bill maximizing unions and labour decreasing returns. It is shown that the standard result, that equilibrium profits are always higher under Cournot, may be reversed even for a fairly low degree of product differentiation. Moreover, the presence of labour decreasing returns tends to reinforce the mechanisms that contribute to the reversal result, making this event possible for a wider range of situations, with respect to those identified by the earlier literature.

Suggested Citation

  • Luciano Fanti & Nicola Meccheri, 2010. "The Cournot-Bertrand profit differential in a differentiated duopoly with unions and labour decreasing returns," Discussion Papers 2010/107, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  • Handle: RePEc:pie:dsedps:2010/107
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    References listed on IDEAS

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    1. Lopez, Monica Correa & Naylor, Robin A., 2004. "The Cournot-Bertrand profit differential: A reversal result in a differentiated duopoly with wage bargaining," European Economic Review, Elsevier, vol. 48(3), pages 681-696, June.
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    Cited by:

    1. 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.
    2. Luciano Fanti & Nicola Meccheri, 2016. "Non-Rigid Wages And Merger Profitability Reversal Under Convex Costs And Centralized Unionization," Bulletin of Economic Research, Wiley Blackwell, vol. 68(4), pages 383-395, October.
    3. Fanti, Luciano & Gori, Luca, 2013. "Efficient bargaining versus right to manage: A stability analysis in a Cournot duopoly with trade unions," Economic Modelling, Elsevier, vol. 30(C), pages 205-211.
    4. Manasakis, Constantine & Vlassis, Minas, 2014. "Downstream mode of competition with upstream market power," Research in Economics, Elsevier, vol. 68(1), pages 84-93.
    5. Fanti, Luciano & Gori, Luca, 2011. "Stability in a Cournot duopoly under asymmetric unionism," MPRA Paper 33694, University Library of Munich, Germany.
    6. Luciano Fanti, 2014. "Welfare effects of cross-ownership in a unionised duopoly," ECONOMIA E POLITICA INDUSTRIALE, FrancoAngeli Editore, vol. 2014(2), pages 21-41.
    7. Fanti, Luciano & Gori, Luca, 2012. "The codetermined firm in a Cournot duopoly: A stability analysis," Economic Modelling, Elsevier, vol. 29(4), pages 1242-1247.
    8. Fanti, Luciano, 2013. "Cross-ownership and unions in a Cournot duopoly: When profits reduce with horizontal product differentiation," Japan and the World Economy, Elsevier, vol. 27(C), pages 34-40.
    9. Luciano Fanti & Luca Gori, 2011. "The dynamics of a Bertrand duopoly with differentiated products and bounded rational firms revisited," Discussion Papers 2011/120, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    10. Luciano Fanti & Nicola Meccheri, 2012. "Differentiated Duopoly and Horizontal Merger Profitability under Monopoly Central Union and Convex Costs," Working Paper series 05_12, Rimini Centre for Economic Analysis.
    11. Fanti, Luciano & Meccheri, Nicola, 2014. "Profits and competition under alternative technologies in a unionized duopoly with product differentiation," Research in Economics, Elsevier, vol. 68(2), pages 157-168.
    12. Luciano Fanti, 2011. "When do firms prefer either monopolistic unions or an efficient bargaining?," Discussion Papers 2011/130, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    13. Maria Alipranti & Emmanuel Petrakis, 2013. "Cournot is More Competitive than Bertrand! Upstream Monopoly with Two-part Tariffs," Working Papers 1305, University of Crete, Department of Economics.
    14. Luciano Fanti, 2016. "Interlocking cross-ownership in a unionised duopoly: when social welfare benefits from “more collusion”," Journal of Economics, Springer, vol. 119(1), pages 47-63, September.
    15. Luciano Fanti, 2011. "When an efficient bargaining is more “efficient†than a competitive labour market," Discussion Papers 2011/131, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    16. Trishita Bhattacharjee & Rupayan Pal, 2013. "Price vs. Quantity in duopoly with strategic delegation: Role of network externalities," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2013-010, Indira Gandhi Institute of Development Research, Mumbai, India.
    17. Fanti, Luciano & Gori, Luca, 2011. "Efficient bargaining versus right to manage: a stability analysis with heterogeneous players in a duopoly with quantity competition and trade unions," MPRA Paper 34434, University Library of Munich, Germany.
    18. Yu, Weisheng & Yu, Yu, 2014. "The complexion of dynamic duopoly game with horizontal differentiated products," Economic Modelling, Elsevier, vol. 41(C), pages 289-297.
    19. Luciano Fanti & Nicola Meccheri, 2015. "On the Cournot–Bertrand Profit Differential and the Structure of Unionisation in a Managerial Duopoly," Australian Economic Papers, Wiley Blackwell, vol. 54(4), pages 266-287, December.
    20. Fanti, Luciano & Gori, Luca, 2012. "The dynamics of a differentiated duopoly with quantity competition," Economic Modelling, Elsevier, vol. 29(2), pages 421-427.
    21. Luciano Fanti & Nicola Meccheri, 2012. "Profits and Competition in a Unionized Duopoly Model with Product Differentiation and Labour Decreasing Returns," Working Paper series 06_12, Rimini Centre for Economic Analysis.
    22. Luciano Fanti, 2014. "When do firms and unions agree on a monopoly union or an efficient bargaining arrangement?," Discussion Papers 2014/181, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    23. Luciano Fanti & Nicola Meccheri, 2012. "Labour decreasing returns, industry-wide union and Cournot-Bertrand profit ranking. A note," Economics Bulletin, AccessEcon, vol. 32(1), pages 894-904.
    24. Fanti, Luciano & Buccella, Domenico, 2015. "Bargaining agenda, timing, and entry," MPRA Paper 64089, University Library of Munich, Germany.

    More about this item

    Keywords

    Cournot-Bertrand profit differential; unions; labour decreasing returns.;

    JEL classification:

    • J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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