Thursday, October 4, 2012
Posted by D. Daniel Sokol
Arijit Mukherjee, University of York, Udo Broll, Dresden University of Technology - Faculty of Economics and Business Management and Soma Mukherjee, University of Nottingham address Bertrand Versus Cournot Competition in a Vertical Structure: A Note.
ABSTRACT: In a vertical structure with a profit‐maximizing upstream firm, we show that whether the profits in the downstream market are higher under Bertrand competition or under Cournot competition depends on the technology differences among the downstream firms and on the pricing strategy (namely uniform pricing or price discrimination) of the upstream firm. The upstream firm's profit, the profit of the upstream and the downstream firms taken together, and social welfare are always higher under Bertrand competition than under Cournot competition.