On Welfare Under Cournot and Bertrand Competition in Differentiated Oligopolies
Yu-Pei Judy Hsu
Nanhua University - Department of Finance and Institute of Financial Management
Xinghe Henry Wang
University of Missouri at Columbia - Department of Economics
Review of Industrial Organization, Vol. 27, No. 2, pp. 185-191, 2005
Hackner (2000, Journal of Economic Theory 93, 233-239) shows that in a differentiated oligopoly with more than two firms, prices may be higher under Bertrand competition than under Cournot competition, implying that the classical result of Singh and Vives (1984, Rand Journal of Economics, 15, 546-554) that Bertrand prices are always lower than Cournot prices is sensitive to the duopoly assumption. Hackner (2000, Journal of Economic Theory, 93, 233-239), however, leaves unanswered the important question of whether welfare may be lower under price competition. This note shows that in Hackner's model both consumer surplus and total surplus are higher under price competition than under quantity competition, regardless of whether goods are substitutes or complements.
Keywords: Bertrand, Cournot, differentiated oligopoly, welfareAccepted Paper Series
Date posted: January 27, 2007
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