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Bertrand versus Cournot revisited

Author

Listed:
  • Cheng-Zhong Qin

    (Department of Economics, University of California, Santa Barbara, CA 93106, USA)

  • Charles Stuart

    (Department of Economics, University of California, Santa Barbara, CA 93106, USA)

Abstract

Bertrand criticized Cournot's analysis of the competitive process, arguing that firms should be seen as playing a strategy of setting price below competitors' prices (henceforth, the Bertrand strategy) instead of a strategy of accepting the price needed to sell an optimal quantity (the Cournot strategy). We characterize Nash equilibria in a generalized model in which firms choose among Cournot and Bertrand strategies. Best responses always exist in this model. For the duopoly case, we show that iterated best responses converge under mild assumptions on initial states either to Cournot equilibrium or to an equilibrium in which only one firm plays the Bertrand strategy with price equal to marginal cost and that firm has zero sales.

Suggested Citation

  • Cheng-Zhong Qin & Charles Stuart, 1997. "Bertrand versus Cournot revisited," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 10(3), pages 497-507.
    • Handle: RePEc:spr:joecth:v:10:y:1997:i:3:p:497-507
    Note: Received: December 11, 1995; revised version October 2, 1996
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    Citations

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    Cited by:

    1. Pascal Billand & Christophe Bravard, 2006. "Les modèles de comportements adaptatifs appliqués à l'oligopole de Cournot," Revue d'économie industrielle, De Boeck Université, vol. 0(2), pages 9-9.
    2. Quan-tao Zhu & Xin-wang Wu & Laixiang Sun, 2014. "A generalized framework for endogenous timing in duopoly games and an application to price-quantity competition," Journal of Economics, Springer, vol. 112(2), pages 137-164, June.
    3. Massimo A. De Francesco, 2001. "On stability of Bertrand-Nash equilibrium in a simple model of the labour market," Economics Bulletin, AccessEcon, vol. 3(19), pages 1-10.
    4. Tanaka, Yasuhito, 2001. "Profitability of price and quantity strategies in an oligopoly," Journal of Mathematical Economics, Elsevier, vol. 35(3), pages 409-418, June.
    5. Wu, Xin-wang & Zhu, Quan-tao & Sun, Laixiang, 2012. "On equivalence between Cournot competition and the Kreps–Scheinkman game," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 116-125.
    6. Ryo Hashizume & Tatsuhiko Nariu, 2020. "Price and quantity competition with network externalities: Endogenous choice of strategic variables," Manchester School, University of Manchester, vol. 88(6), pages 847-865, December.
    7. Tasnadi, Attila, 2006. "Price vs. quantity in oligopoly games," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 541-554, May.

    More about this item

    JEL classification:

    • B13 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Wicksellian)
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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