IDEAS home Printed from https://ideas.repec.org/p/swe/wpaper/2008-18.html
   My bibliography  Save this paper

Comparing Bertrand and Cournot Outcomes in the Presence of Public Firms

Author

Listed:
  • Arghya Ghosh

    () (School of Economics, The University of New South Wales)

  • Manipushpak Mitra

    () (Indian Statistical Institute)

Abstract

We revisit the classic comparison between Bertrand and Cournot outcomes in a mixed market with private and public firms. A departure from the standard setting, i.e., one where all firms maximize profits, provides new insights. A welfare-maximizing public firm's price is strictly lower while its output is strictly higher in Cournot competition. And whereas the private firm's quantity is strictly lower in Cournot (as in the standard setting), its price can be higher or lower. Despite this ambiguity, both firms, public and private, earn strictly lower profits in Cournot. The consumer surplus is strictly higher in Cournot under a linear demand structure. All these results also hold with more than two firms under a wide range of parameterizations. The ranking reversals also hold in a richer setting with a partially privatized public firm, where the extent of privatization is endogenously determined by a welfare-maximizing government. As a by-product of our analysis, we find that in a differentiated duopoly setting, partial privatization always improves welfare in Cournot but not necessarily in Bertrand competition.

Suggested Citation

  • Arghya Ghosh & Manipushpak Mitra, 2008. "Comparing Bertrand and Cournot Outcomes in the Presence of Public Firms," Discussion Papers 2008-18, School of Economics, The University of New South Wales.
  • Handle: RePEc:swe:wpaper:2008-18
    as

    Download full text from publisher

    File URL: http://wwwdocs.fce.unsw.edu.au/economics/Research/WorkingPapers/2008_18.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Anderson, Simon P. & de Palma, Andre & Thisse, Jacques-Francois, 1997. "Privatization and efficiency in a differentiated industry," European Economic Review, Elsevier, vol. 41(9), pages 1635-1654, December.
    2. Dastidar, Krishnendu Ghosh, 1997. "Comparing Cournot and Bertrand in a Homogeneous Product Market," Journal of Economic Theory, Elsevier, vol. 75(1), pages 205-212, July.
    3. Fershtman, Chaim, 1990. "The Interdependence between Ownership Status and Market Structure: The Case of Privatization," Economica, London School of Economics and Political Science, vol. 57(227), pages 319-328, August.
    4. 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.
    5. 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.
    6. SchmitzJr, James A., 2001. "Government production of investment goods and aggregate labor productivity," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 163-187, February.
    7. Okuguchi, Koji, 1987. "Equilibrium prices in the Bertrand and Cournot oligopolies," Journal of Economic Theory, Elsevier, vol. 42(1), pages 128-139, June.
    8. Matsumura, Toshihiro, 1998. "Partial privatization in mixed duopoly," Journal of Public Economics, Elsevier, vol. 70(3), pages 473-483, December.
    9. Amir, Rabah & Jin, Jim Y., 2001. "Cournot and Bertrand equilibria compared: substitutability, complementarity and concavity," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 303-317, March.
    10. Toshihiro Matsumura & Noriaki Matsushima, 2004. "Endogenous Cost Differentials between Public and Private Enterprises: A Mixed Duopoly Approach," Economica, London School of Economics and Political Science, vol. 71(284), pages 671-688, November.
    11. Cremer, Helmuth & Marchand, Maurice & Thisse, Jacques-Francois, 1991. "Mixed oligopoly with differentiated products," International Journal of Industrial Organization, Elsevier, vol. 9(1), pages 43-53, March.
    12. de Fraja, Giovanni & Delbono, Flavio, 1990. " Game Theoretic Models of Mixed Oligopoly," Journal of Economic Surveys, Wiley Blackwell, vol. 4(1), pages 1-17.
    13. Hackner, Jonas, 2000. "A Note on Price and Quantity Competition in Differentiated Oligopolies," Journal of Economic Theory, Elsevier, vol. 93(2), pages 233-239, August.
    14. Qiu, Larry D., 1997. "On the Dynamic Efficiency of Bertrand and Cournot Equilibria," Journal of Economic Theory, Elsevier, vol. 75(1), pages 213-229, July.
    15. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, January.
    16. Leonard Cheng, 1985. "Comparing Bertrand and Cournot Equilibria: A Geometric Approach," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 146-152, Spring.
    17. 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.
    18. de Fraja, Giovanni & Delbono, Flavio, 1989. "Alternative Strategies of a Public Enterprise in Oligopoly," Oxford Economic Papers, Oxford University Press, vol. 41(2), pages 302-311, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marcella Scrimitore, 2014. "Profitability under Commitment in Cournot and Bertrand Mixed Markets," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 170(4), pages 684-703, December.
    2. Corrado Benassi & Alessandra Chirco & Marcella Scrimitore, 2014. "Optimal manipulation rules in a mixed oligopoly," Journal of Economics, Springer, vol. 112(1), pages 61-84, May.
    3. Roy Chowdhury, Prabal, 2009. "Mixed Duopoly with Price Competition," MPRA Paper 9220, University Library of Munich, Germany.
    4. Ghosh, Arghya & Mitra, Manipushpak, 2010. "Comparing Bertrand and Cournot in mixed markets," Economics Letters, Elsevier, vol. 109(2), pages 72-74, November.
    5. Scrimitore, Marcella, 2011. "Profitability in Cournot and Bertrand Mixed Markets under Endogenous Objectives," MPRA Paper 35643, University Library of Munich, Germany.
    6. Corrado Benassi & Alessandra Chirco & Marcella Scrimitore, 2011. "Optimal Manipulation Rules in a Mixed Duopoly," Working Paper series 43_11, Rimini Centre for Economic Analysis.

    More about this item

    Keywords

    Bertrand; Cournot; public firms; partial privatization;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:swe:wpaper:2008-18. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Hongyi Li) or (Rebekah McClure). General contact details of provider: http://edirc.repec.org/data/senswau.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.