THE COURNOT-BERTRAND PROFIT DIFFERENTIAL: A REVERSAL RESULT IN A DIFFERENTIATED DUOPOLY WITH WAGE BARGAINING

Mónica Correa López and Robin A. Nayor
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Mónica Correa López: University of Warwick
Robin A. Nayor: University of Warwick

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: This paper compares Cournot and Bertrand equilibria in a downstream differentiated duopoly in which the input price (wage) paid by each downstream firm is the outcome of a strategic bargain with its upstream supplier (labour union). We show that the standard result that Cournot equilibrium profits exceed those under Bertrand competition - when the differentiated duopoly game is played in imperfect substitutes - is reversible. Whether equilibrium profits are higher under Cournot or Bertrand competition is shown to depend upon the nature of the upstream agents’ preferences, on the distribution of bargaining power over the input price and on the degree of product market differentiation. We find that the standard result holds unless unions are both powerful and place considerable weight on the wage argument in their utility function. One implication of this is that if the upstream agents are profit-maximising firms, then the standard result will obtain.

Keywords: differentiated duopoly; wage bargaining; Cournot; Bertrand. (search for similar items in EconPapers)
JEL-codes: D43 J50 L13 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2002
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:631

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