Endogenous Determination of Strategies in a Kantian Duopoly

We revisit the endogenous determination problem of strategies for each firm in a duopoly market. Particularly, we focus on the scenario wherein each firm behaves as a Kantian duopoly. In a Kantian duopoly with substitutes, we demonstrate that Bertrand competition can be uniquely observed in equilibrium if each firm’s marginal cost is high relative to any degree of homogeneity between goods produced by each firm. Conversely, Cournot competition can also be observed in equilibrium if its marginal cost is low relative to degree of homogeneity. Conversely, in a Kantian duopoly with complements, we demonstrate that the two asymmetric market structures relative to each rim’s strategy can be observed in equilibrium if its marginal cost is high relative to the degree of homogeneity. Cournot competition, however, can also be observed in equilibrium. Furthermore, in a Kantian duopoly, we find that the area of the degree of homogeneity and each firm’s marginal cost such that the equilibrium market structure(s) can coincide with the socially preferable market structure(s) is larger when the goods are complements than when they are substitutes. Consequently, in a Kantian duopoly, each firm’s free determination of its strategy should be permitted rather when the goods are complements than when goods are substitutes.