Thursday, June 30, 2016

Cournot, Bertrand or Chamberlin: Toward a reconciliation

Parenti, Mathieu ; Sidorov, Alexander ; Thisse, Jacques-Francois ; Zhelobodko, Evgeny examine Cournot, Bertrand or Chamberlin: Toward a reconciliation.

ABSTRACT: The purpose of this paper is to provide a comparison of three types of competition in a differentiated industry: Cournot, Bertrand, and monopolistic competition. This is accomplished in an economy involving one sector and a population of consumers endowed with separable preferences and a given number of labor units. When firms are free to enter the market, monopolistically competitive firms charge lower prices than oligopolistic firms, while the mass of varieties provided by the market is smaller under the former than the latter. If the economy is sufficiently large, Cournot, Bertrand and Chamberlin solutions converge toward the same market outcome, which may be a competitive or a monopolistically competitive equilibrium, depending on the nature of preferences

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