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Author: Piercarlo Zanchettin
Publisher:
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Languages : en
Pages : 0
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In this paper, we compare Bertrand and Cournot equilibria in a differentiated duopoly with linear demand and cost functions. We extend the Singh and Vives (1984) model by allowing for a wider range of cost and demand (product quality) asymmetry between firms. Focusing on the case of substitute goods, we show that both the efficient firm's profits and industry profits are higher under Bertrand competition when asymmetry is strong and/or products are weakly differentiated. Therefore, Singh and Vives's ranking of profits between the two modes of competition is reversed in a sizeable portion of the relevant parameter space. Contrary to the standard result with symmetric firms, we also show that product differentiation can reduce both the efficient firm's and industry profits, implying that a local incentive towards less differentiation may arise.
Author: Piercarlo Zanchettin
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ISBN:
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Languages : en
Pages : 0
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Book Description
In this paper, we compare Bertrand and Cournot equilibria in a differentiated duopoly with linear demand and cost functions. We extend the Singh and Vives (1984) model by allowing for a wider range of cost and demand (product quality) asymmetry between firms. Focusing on the case of substitute goods, we show that both the efficient firm's profits and industry profits are higher under Bertrand competition when asymmetry is strong and/or products are weakly differentiated. Therefore, Singh and Vives's ranking of profits between the two modes of competition is reversed in a sizeable portion of the relevant parameter space. Contrary to the standard result with symmetric firms, we also show that product differentiation can reduce both the efficient firm's and industry profits, implying that a local incentive towards less differentiation may arise.
Author: Piercarlo Zanchettin
Publisher:
ISBN:
Category : Duopolies
Languages : en
Pages : 32
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Author: Tarek H. Selim
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Languages : en
Pages : 0
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Spatial quality choice is introduced, where consumers are horizontally differentiated by taste and firms vertically differentiated by quality location, within an equilibrium model of duopoly competition characterized by asymmetric fixed and variable costs. Firms choose quality location followed by prices but then may vertically re-locate their quality offerings based on changing horizontal consumer taste. A monopolistic equilibrium solution arises with firms achieving positive economic profits through price-quality markups exceeding marginal costs. Under strict inequality conditions, each firm acts as a monopolistic competitor within a range of quality choices governed by multiple relative differentiation outcomes. On the other hand, vertical re-location exhibits a resistance to change on the part of vertically located firms such that firms dislike quality re-location and prefer stable preferences in quality. Such resistance to change is overcome by firms re-locating their quality offerings to maximize monopolistic brand-space gains. It is argued that more horizontal differentiation may force more product differentiation by vertical quality relocation. A relative change in quality preferences may result in wider quality spreads in the market through vertical quality re-locations, even though the resistance to change arguments may still hold good.
Author: Kangsik Choi
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Languages : en
Pages : 0
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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.
Author: Naoto Jinji
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Category :
Languages : en
Pages : 0
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We examine the optimal R&D subsidy/tax policy under a vertically differentiated duopoly. In a significant departure from the existing work, we consider the case of asymmetric costs of product R&D where there is a small technology gap between firms. In our analysis, the endogeneity of quality ordering is explicitly taken into account. We demonstrate the possible anti-leapfrogging effect of R&D subsidy/tax policy. By committing to a firm-specific subsidy schedule contingent on firms quality choices, the government can not only correct distortions in product quality but also select the socially preferred equilibrium. The latter role is fulfilled by preventing the technologically inferior firm from becoming a quality leader in the industry. Both Bertrand and Cournot cases are analysed.
Author: Iwan Bos
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Category :
Languages : en
Pages :
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Author: Anette Boom
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Category :
Languages : en
Pages : 26
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Author: Arghya Ghosh
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ISBN: 9780733419522
Category : Automobile industry and trade
Languages : en
Pages : 32
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Author: Corrado Benassi
Publisher:
ISBN:
Category :
Languages : en
Pages : 30
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The paper proves the existence of a subgame perfect Nash equilibrium in a vertically differentiated duopoly with uncovered market, for a large set of symmetric and asymmetric distributions of consumers, including, among others, all logconcave distributions. The proof relies on the 'income share elasticity' representation of the consumers' density function, which ensures the analytical tractability of the firms' optimality conditions at a high level of generality. Some illustrative examples of the solution are offered, in order to assess the impact of distributive shocks on the equilibrium market configuration.
Author: Nirvikar Singh
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ISBN:
Category :
Languages : en
Pages : 32
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