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Reversal of Bertrand-Cournot Rankings in the Presence of Welfare Concerns

Arghya Ghosh () and Manipushpak Mitra ()

Journal of Institutional and Theoretical Economics (JITE), 2014, vol. 170, issue 3, 496-519

Abstract: We revisit the comparison between Bertrand and Cournot competition in a symmetric differentiated oligopoly where each firm maximizes a weighted average of its own profit and welfare. Under very general specifications, Bertrand competition yields higher prices and profits, and lower quantities, consumer surplus, and welfare than Cournot when the weight on profit is lower than a threshold value. The threshold weight on profit (welfare) can be arbitrarily close to unity (zero) for both quadratic and CES utilities. Particularly striking is the following asymptotic result for CES: irrespective of the degree of substitutability, the threshold weight on profit tends to unity as the number of firms approaches infinity.

JEL-codes: D43 L13 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1628/093245613X13946181776030

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