Bertrand vs. Cournot equilibrium with risk averse firms and cost uncertainty

Harrison Cheng ()
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Harrison Cheng: Department of Economics, University of Southern California, University Park, Los Angeles, CA, 90089-0253, USA

Economic Theory, 2002, vol. 20, issue 3, 555-577

Abstract: In an oligopoly game with cost uncertainty and risk averse firms, we show that Bertrand and Cournot equilibrium have different convergence properties when the market is replicated. The Cournot equilibrium price converges to the competitive price. Under very typical and somewhat general conditions, the highest Bertrand equilibrium price converges to one higher than the competitive equilibrium. We also give examples to show how to compute the limit of the highest Bertrand equilibrium prices and illustrate the ideas of the proof. We explore conditions under which the supply curve is upward sloping, a useful condition for our results.

Keywords: Market size; Bertrand competition; Cournot competition; risk averse firms; Cost uncertainty. (search for similar items in EconPapers)
JEL-codes: C72 D43 D80 L13 (search for similar items in EconPapers)
Date: 2002-03-21
Note: Received: April 20, 2000; revised version: May 10, 2001
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Citations: View citations in EconPapers (7)

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