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On the Coalitional Stability of Monopoly Power in Differentiated Bertrand and Cournot Oligopolies

Aymeric Lardon

No 2017-10, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis

Abstract: In this article we revisit the classic comparison between Bertrand and Cournot competition in the presence of a cartel of firms that faces outsiders acting individually. This competition setting enables to deal with both non-cooperative and cooperative oligopoly games. We concentrate on industries consisting of symmetrically differentiated products where firms operate at a constant and identical marginal cost. First, while the standard Bertrand-Cournot rankings still hold for Nash equilibrium prices, we show that the results may be altered for Nash equilibrium quantities and profits.Second, we define cooperative Bertrand and Cournot oligopoly games with transferable utility on the basis of their non-cooperative foundation. We establish that the core of a cooperative Cournot oligopoly game is strictly included in the core of a cooperative Bertrand oligopoly game when the number of firms is lower or equal to 25. Otherwise the cores cannot be compared. Moreover, we focus on the aggregate-monotonic core, a subset of the core, that has the advantage to select point solutions satisfying both core selection and aggregate monotonicity properties. We succeed in comparing the aggregate-monotonic cores between Bertrand and Cournot competition regardless of the number of firms.

Keywords: Bertrand; Cournot; Differentiated oligopoly; Cartel; Nash equilibrium; Core; Aggregate-monotonic core (search for similar items in EconPapers)
JEL-codes: C71 D43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind, nep-mic and nep-ore
Date: 2017-03
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Persistent link: https://EconPapers.repec.org/RePEc:gre:wpaper:2017-10

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