Cournot vs. Bertrand Competitions in a Vertical Relationship with Separate Downstream Markets

Aika Monden (), Shuhei Takezawa () and Tomomichi Mizuno
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Aika Monden: Graduate School of Management, Kyoto University
Shuhei Takezawa: Institute of Social and Economic Research , Osaka University

No 2318, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: Contrary to conventional wisdom, our analysis of vertical relationships involving two geographically distinct downstream markets challenges the notion that Bertrand competition yields lower profits than Cournot competition. We demonstrate that when the market size where two downstream firms compete on either quantity or price is smaller than the other downstream market, the input price in downstream Bertrand competition is lower compared to Cournot competition. Therefore, this may result in higher profits for downstream firms under Bertrand competition.

Pages: 13 pages
Date: 2023-11
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