BERTRAND Vs. COURNOT COMPETITION WITH UPSTREAM FIRM INVESTMENT

This paper compares Bertrand and Cournot competition in a vertical structure in which the upstream firm sets the input price and makes R&D investments. We show that from the downstream firms’ point of view, Cournot competition has the advantage of a more monopolistic effect, leading to the setting of a higher price, but has the disadvantage of inducing a lower incentive for the upstream firm to invest. On the other hand, Bertrand competition has the advantage of providing a greater incentive for the upstream firm to invest but has the disadvantage of a more competitive effect, leading to the setting of a lower price. Our main findings are as follows. First, R&D investment level is greater under Bertrand competition than under Cournot competition. Second, from the standpoint of the upstream firm and industry, Bertrand competition is more efficient than Cournot competition. Third, from the standpoint of the downstream firms, Bertrand competition is more efficient than Cournot when investment is sufficiently efficient and products are sufficiently differentiated.     

Dynamic efficiency of Cournot and Bertrand competition: input versus output spillovers

We consider the efficiency of Cournot and Bertrand equilibria in a duopoly with substitutable goods where firms invest in process R&D that generates input spillovers. Under Cournot competition firms always invest more in R&D than under Bertrand competition. More importantly, Cournot competition yields lower prices than Bertrand competition when the R&D production process is efficient, when spillovers are substantial, and when goods are not too differentiated. The range of cases for which total surplus under Cournot competition exceeds that under Bertrand competition is even larger as competition over quantities always yields the largest producers’ surplus.     

Price and quantity competition under free entry

This paper complements that of Cellini et al. (Cellini, R., Lambertini, L., Ottaviano, G. I. P., 2004. Welfare in a differentiated oligopoly with free entry: A cautionary note. Research in Economics, 58:125–33.), which shows that Cournot competition may generate higher welfare compared to Bertrand competition in an economy with free entry. Unlike them, we provide a more general proof for this result and show that Cournot competition generates higher welfare compared to Bertrand competition when the products are sufficiently differentiated. If the products are close substitutes, welfare is higher under Bertrand competition. We show that these qualitative results hold whether or not number of varieties increases market size. We also show when the active firms earn higher profits under Bertrand competition compared to Cournot competition.     

Mixed Competition and Patent Licensing

This paper studies the patent licensing decision of an insider patentee when two firms engage in a mixed (Cournot–Bertrand or Bertrand–Cournot) competition where one firm adopts the quantity strategy while the other uses the price strategy and vice versa. If either the fixed fee or royalty is applied, then the licensor prefers the fixed fee when the licensor takes the quantity strategy, while the licensee uses the price strategy (Cournot–Bertrand). If the two‐part tariff is applied, then the two‐part tariff is more likely to be adopted by the licensor under Cournot–Bertrand than under Bertrand–Cournot competition.     

Emissions abatement R&D: Dynamic competition in supply schedules

This paper investigates the optimal environmental policy (the mix of emissions tax and research and development [R&D] subsidy) in a dynamic setting when two firms, producing differentiated products, compete in the output market over time. Firms compete in a differential game setting over supply schedules, which encompasses a continuum of imperfect competition equilibria from Bertrand to Cournot. Although production generates environmentally damaging emissions, firms can undertake R&D that has the sole purpose of reducing emissions. In addition to characterizing the optimal policy, we examine how the optimal tax and subsidy, and the optimal level of abatement, change as competition intensifies, as the dynamic parameters change, and as the investment in abatement technology changes. In this setting, competition increases welfare through its impact on the final goods price. However, lower prices result in larger quantities and more pollution. Our key contribution is to show how the impact of increased competition on welfare depends on the extent of the market and the nature of preferences and technology.     

On the Neutrality of Profit Taxation in a Mixed Oligopoly

This paper investigates the neutrality of profit taxation in a mixed oligopoly where one (partially) public firm competes with private firms. We find that the neutrality of a profit tax is robust under a general cost and a general demand function as long as the degree of privatization is endogenously determined. This result is also true when product heterogeneity is considered under both Cournot and Bertrand competition. By contrast, if the degree of privatization is exogenously given, the profit tax neutrality holds only in the cases where the public firm is fully privatized or fully state-owned; otherwise, the neutrality breaks down.     

The Optimal Privatization Policies under an International Mixed Duopoly

This paper explores the socially optimal privatization policies under the setting of international mixed duopoly. We find that partial privatization is socially optimal under Cournot competition and private leadership competition, whereas full nationalization is socially optimal under public leadership competition. Moreover, the equilibrium social welfare under private leadership competition is higher than that observed under Cournot competition and that observed under private leadership competition, which differs from the findings of Matsumura ( 2003b ). We also show that the endogenous timing game has a subgame perfect Nash equilibrium outcome, under which the government chooses a partial privatization policy, and private leadership competition emerges as the optimal output decision sequence of firms. An important policy implication from this paper is that the government should partially privatize the public firm and facilitate the emergence of private leadership competition in an international mixed market.     

THE DECISION TO HIRE MANAGERS IN MIXED MARKETS UNDER BERTRAND COMPETITION*

This paper analyses the decisions of firms as to whether or not to hire managers when there is a public firm competing with a private firm in the product market. It is shown that under Bertrand competition with heterogeneous goods both firms hire managers. This is in contrast with the result obtained under Cournot competition, where only the private firm hires a manager. Moreover, welfare is lower if both firms hire managers than if neither firm does. In contrast, under Cournot competition welfare is greater if both firms hire managers.     

PRICE AND QUANTITY COMPETITION WITH ASYMMETRIC COSTS IN A MIXED DUOPOLY: A TECHNICAL NOTE

We consider a mixed duopoly in which private and public firms can choose to strategically set prices or quantities when the public firm is less efficient than the private firm. Thus, even with cost asymmetry, we obtain exactly the same result (i.e., Bertrand competition) of Matsumura and Ogawa (2012) if Singh and Vives’ (1984) assumption of positive primary outputs holds. However, compared to endogenous determination of the type of contract without cost asymmetry, our main finding is that in the wider range of cost asymmetry, different type(s) of equilibrium related to or not related to the limit‐pricing strategy of the private firm can be sustained. Thus, when considering an implication on privatization, we may overestimate the welfare gain of privatization because Cournot competition takes place after privatization even though cost asymmetry exists between firms. While the result of Matsumura and Ogawa (2012) holds true if the goods are complements, we find the novel results in the case of substitutes.     

Symbiotic Production and Optimal Export Policy

This paper constructs a two‐country trade model to examine the optimal policies relating to the export of final and intermediate products under Cournot as well as Bertrand competition when firms engage in symbiotic production internationally. The paper shows that given linear demand for the final product, the optimal export policies are to tax the exports of both the final and intermediate goods under symbiotic production, regardless of whether firms engage in Cournot or Bertrand competition in the final good market, which is contrary to the conventional wisdom.     

Emission tax and optimal privatization in Cournot–Bertrand comparison

We compare a Cournot with a Bertrand duopoly in a differentiated mixed market when both emission tax and privatization policies are used together. We find that the optimal emission tax is always lower than the marginal environmental damage, and it is always lower under Cournot than under Bertrand. We also find that the optimal privatization is always a partial privatization, and it is always higher under Cournot than under Bertrand. The socially optimal combinations of emission tax and privatization will damage the environment most, but Cournot yields lower environmental damage and social welfare than those under Bertrand. Finally, we show that the environmental damage is non-monotone in the level of privatization under both Cournot and Bertrand competitions.     

国际多市场寡头条件下的贸易政策和产业政策

国际多市场寡头是Bulow( 1 985)提出的多市场寡头概念在国际贸易领域的自然延伸。在本文中 ,市场之间联系的纽带是本国企业具有规模收益递减的生产技术。本文的主要结论是 ,第一 ,如果本国企业与外国企业在外国市场进行价格竞争 ,那么 ,最优干预组合包括国内生产补贴与出口税 ,它们对本国福利的作用是一致的。第二 ,如果本国企业与外国企业在外国市场进行数量竞争 ,那么 ,最优干预政策组合包括国内生产补贴与出口补贴 ,它们作用于本国福利的方向是不一致的 ,这时 ,本国政府用国内生产补贴执行反托拉斯职能 ,用出口补贴执行利润转移职能。第三 ,作为模型的一个应用 ,本文论证了出口退税政策会加剧国内市场的扭曲 ;而且它不一定能够提高本国福利。     

The Political Economy of Strategic Trade Policies*

This paper applies Grossman and Helpman's (1994 ) common agency model to investigate the formation of strategic export subsidy and strategic import tariff under both Cournot competition and Bertrand competition. The results of this paper indicate that even with political pressure, the Grossman–Helpman politically‐determined export policy is identical to the rent‐shifting export policy, which is export subsidy (export tax) in Cournot (Bertrand) competition. The politically‐determined import tariff will be higher than the optimal level. This paper highlights the possibility that lobbying can restore the level of trade intervention to a more efficient one in the absence of the benevolent dictator.     

On the comparison of price and quantity competition under endogenous timing

This paper compares Bertrand and Cournot equilibria in a differentiated duopoly with linear demand, and asymmetric constant marginal cost under endogenous timing. It shows that endogenous timing leads to two sequential play with both leader–follower configurations in Bertrand, but simultaneous play in Cournot. Moreover, every firm’s mark-up/output ratio and the two firms’ weighted ‘average’ price are all lower, but the two firms’ weighted ‘average’ output is higher in either of the two sequential Bertrand equilibria than in the simultaneous-move Cournot equilibrium.     

ALTERNATIVE STRATEGIES OF A PUBLIC ENTERPRISE IN OLIGOPOLY REVISITED: AN EXTENSION TO STACKELBERG COMPETITION

This paper revisits De Fraja and Delbono (1989), which is the seminal paper on mixed oligopoly, in order to pay more attention to Stackelberg competition. First, we show that, even in Cournot competition, if the number of private firms is sufficiently small, privatization necessarily reduces social welfare. Second, we demonstrate that when a public firm is a Stackelberg leader before and after privatization, privatization necessarily reduces welfare irrespective of the number of private firms. Moreover, we show that even when a public firm remains a follower, privatization reduces welfare if the number of private firms is relatively small.     

Unionized Bertrand Duopoly and Strategic Export Policy

The paper reports that an export subsidy is optimal for a unionized Bertrand duopoly. Following results published by Brander and Spencer ( Journal of International Economics , 1988, pp. 217–34), this establishes the robustness of export subsidization to the mode of competition (Cournot or Bertrand), and contrasts with nonunion results in the literature. If both firms are unionized and both governments pursue active trade policies, a subsidy remains optimal except for a narrow range of extreme substitutability between products. Nations with a lower opportunity cost of labor employ more aggressive policies in equilibrium.     

Environmental innovation policy and international competition

We consider one polluting industry in an open economy. The national government implements a policy of industrial pollution control, by inducing appropriate technological innovation to reduce toxic emissions. The emission-reducing innovations are developed through firm-specific costly investments. Under different hypotheses on market structure (perfect competition, Bertrand and Cournot oligopoly), international competition forces the national government to subsidize innovation. The appropriate subsidy scheme varies according to the information available to the government and according to market structure. If information is asymmetric, the subsidy must include the information premium necessary to separate different types of firms.     

Stakeholders’ relationships and product market competition

In this article, we study the relationships between main stakeholders (shareholders, consumers and employees) when firms are consumer oriented (CO) in the sense of caring about consumers’ interests in the objective function. We let these firms first bargain with labour union over their employees’ wages and then compete either in the quantity space (Cournot competition) or in the price space (Bertrand competition). Our model shows that taking care of the consumers’ interests when determining product market strategies may reverse the traditional ranking between Cournot and Bertrand equilibria. This implies that if shareholders in a CO firm can choose either a quantity or a price strategy, they will surprisingly choose the latter. Moreover, we show that the conflicting interests between main stakeholders are attenuated under Bertrand competition compared to Cournot competition.     

Biased managers with network externalities

In network industry under Cournot and Bertrand competition, we examine a model when owners of firms hire biased managers who have incorrect market demand. Contrast to previous studies, we show that (i) regardless of the strength of network externalities when consumers form the responsive and passive expectations, owners realize strategic advantage by hiring biased managers to be more aggressive under Cournot and Bertrand competition, (ii) firms prefer facing passive expectations for the weak network externalities and vice versa for the strong network exteranlities under Bertrand and Cournot competition, (iii) if the network size is sufficiently large, then the prisoner's dilemma that firms hire aggressive managers no longer exists under both competition modes. As with no delegation case, we obtain the different rankings of firms' profit depending on both network externalities and forming of expectations under Cournot and Bertrand competition.