On Vertical Differentiation Under Bertrand and Cournot: When Input Quality has Upward Sloping Supply

Frascatore Mark R. ()
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Frascatore Mark R.: Clarkson University

The B.E. Journal of Economic Analysis & Policy, 2002, vol. 2, issue 1, 1-15

Abstract: This paper compares Bertrand and Cournot duopolies in which firms can vertically differentiate their products and in which input quality has upward sloping supply. Contrary to previous results, if supply is either linear or convex with a high coefficient, firms differentiate their products equally under Bertrand and Cournot, with one firm choosing the minimum quality. If supply is convex with a low coefficient, firms differentiate more under Bertrand. Profit and welfare implications are discussed, as is the strategic choice of quality as an entry deterrence strategy.

Date: 2002
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DOI: 10.2202/1538-0653.1002

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