Foreign equity caps under two types of competition: Bertrand and Cournot

This paper explores foreign equity caps for international joint ventures under different types of competition, i.e., Bertrand and Cournot competition, with product differentiation. We demonstrate that government sets the foreign equity cap at a laxer level under Cournot competition than under Bertrand competition. This result illustrates that the possibility of international joint ventures weakens government's ability to affect firm behavior through the implementation of foreign equity caps.Foreign equity caps Cournot competition Bertrand competiton Product differentiation

Network Cournot Competition

Cournot competition is a fundamental economic model that represents firms competing in a single market of a homogeneous good. Each firm tries to maximize its utility---a function of the production cost as well as market price of the product---by deciding on the amount of production. In today's dynamic and diverse economy, many firms often compete in more than one market simultaneously, i.e., each market might be shared among a subset of these firms. In this situation, a bipartite graph models the access restriction where firms are on one side, markets are on the other side, and edges demonstrate whether a firm has access to a market or not. We call this game \emph{Network Cournot Competition} (NCC). In this paper, we propose algorithms for finding pure Nash equilibria of NCC games in different situations. First, we carefully design a potential function for NCC, when the price functions for markets are linear functions of the production in that market. However, for nonlinear price functions, this approach is not feasible. We model the problem as a nonlinear complementarity problem in this case, and design a polynomial-time algorithm that finds an equilibrium of the game for strongly convex cost functions and strongly monotone revenue functions. We also explore the class of price functions that ensures strong monotonicity of the revenue function, and show it consists of a broad class of functions. Moreover, we discuss the uniqueness of equilibria in both of these cases which means our algorithms find the unique equilibria of the games. Last but not least, when the cost of production in one market is independent from the cost of production in other markets for all firms, the problem can be separated into several independent classical \emph{Cournot Oligopoly} problems. We give the first combinatorial algorithm for this widely studied problem

Technology adoption in a differentiated duopoly: Cournot versus bertrand

This paper compares equilibrium technology adoption in a differentiated duopoly under two alternative modes of product market competition, Cournot and Bertrand. It shows that the cost of technology has differential impact on technology adoption, that is, on cost-efficiency of the industry, under two alternative modes of product market competition. The possibility of ex post cost asymmetry between firms is higher under Bertrand competition than under Cournot competition. If the cost of technology is high, Bertrand competition leads to higher cost-efficiency than Cournot competition provided that the cost reducing effect of the technology is high. On the other hand, if the technology reduces the marginal cost of production by a very low amount, Cournot competition may lead to higher cost-efficiency than Bertrand competition.Differentiated duopoly, limit-pricing, price effect, selection effect, technology adoption

Incentives and welfare effect of sharing firm-specific information

This paper studies the incentives and the welfare effect of sharing firm-specific information in asymmetric Cournot and Bertrand oligopoly with mixed substitute and complement goods. Revealing firm-specific cost information is the dominant strategy in Cournot oligopoly, while concealing is so in Bertrand oligopoly. Such information sharing always hurts consumers. It increases social welfare in quantity competition and reduces social welfare in price competition. The results of sharing firm-specific cost information in Cournot oligopoly also apply to sharing firm-specific demand information in Cournot and Bertrand competition. -- In diesem Beitrag werden Anreize und Wohlfahrtseffekte des Austauschs von unternehmensspezifischer Information in einem asymmetrischen Cournot- und Bertrand- Oligopol mit einer Mischung von substitutiven und komplementären Gütern untersucht. Das Aufdecken unternehmensspezifischer Kosteninformation ist die dominante Strategie im Cournot-Oligopol, während im Bertrand-Oligopol diese Information vorenthalten wird. Derartiger Informationsaustausch geht immer zu Lasten der Konsumenten. Er erhöht die soziale Wohlfahrt im Mengenwettbewerb und verringert die soziale Wohlfahrt im Preiswettbewerb. Das Ergebnis des Austauschs unternehmensspezifischer Kosteninformation im Cournot-Oligopol läßt sich auch auf den unternehmensspezifischen Austausch von Nachfrageinformation im Cournot- und Bertrand-Wettbewerb anwenden.

On Welfare under Cournot and Bertrand Competition in Differentiated Oligopolies

Hackner (2000) shows that in a differentiated oligopoly with more than two firms , prices may be higher under Bertrand competition than under Cournot competition, implying that the classical result of Singh and Vives (1984) that Bertrand prices are always lower than Cournot prices is sensitive to the duopoly assumption. Hackner (2000), however, leaves unanswered the important question of whether welfare may be lower under price competition. This note shows that in Hackners model both consumer surplus and total surplus are higher under price competition than under quantity competition regardless of whether goods are substitutes or complements.Bertrand; Cournot; Differentiated oligopoly; Welfare

Beyond myopic best response (in Cournot competition)

A Nash Equilibrium is a joint strategy profile at which each agent myopically plays a best response to the other agents' strategies, ignoring the possibility that deviating from the equilibrium could lead to an avalanche of successive changes by other agents. However, such changes could potentially be beneficial to the agent, creating incentive to act non-myopically, so as to take advantage of others' responses. To study this phenomenon, we consider a non-myopic Cournot competition, where each firm selects whether it wants to maximize profit (as in the classical Cournot competition) or to maximize revenue (by masquerading as a firm with zero production costs). The key observation is that profit may actually be higher when acting to maximize revenue, (1) which will depress market prices, (2) which will reduce the production of other firms, (3) which will gain market share for the revenue maximizing firm, (4) which will, overall, increase profits for the revenue maximizing firm. Implicit in this line of thought is that one might take other firms' responses into account when choosing a market strategy. The Nash Equilibria of the non-myopic Cournot competition capture this action/response issue appropriately, and this work is a step towards understanding the impact of such strategic manipulative play in markets. We study the properties of Nash Equilibria of non-myopic Cournot competition with linear demand functions and show existence of pure Nash Equilibria, that simple best response dynamics will produce such an equilibrium, and that for some natural dynamics this convergence is within linear time. This is in contrast to the well known fact that best response dynamics need not converge in the standard myopic Cournot competition. Furthermore, we compare the outcome of the non-myopic Cournot competition with that of the standard myopic Cournot competition. Not surprisingly, perhaps, prices in the non-myopic game are lower and the firms, in total, produce more and have a lower aggregate utility

Spatial Cournot Competition and Consumers’ Heterogeneity: A Note

We consider the standard model of spatial Cournot competition and show that a necessary condition for dispersion equilibria is that the distribution be not unimodal.Spatial Cournot competition, consumers’ distribution

Optimal resource allocation in General Cournot-competitive equilibrium

Conventional economic theory stipulates that output in Cournot competition is too low relative to that which is attained in perfect competition. We revisit this result in a General Cournot-competitive Equilibrium model with two industries that differ only in terms of productivity. We show that in general equilibrium, the more efficient industry produces too little and the less efficient industry produces too much compared to an optimal scenario with perfect competition

Mixed Oligopoly, privatization and strategic trade policy: a note

In debates over privatization and global competition mixed Cournot oligopoly models have been used to show that the presence of a state-owned enterprise in the host country is always associated with a distortionary effect that may justify privatization even if the public firm is just as efficient as its private counterparts. This study argues that this result is valid only under Cournot competition and Cournot competition is not a plausible modelling assumption in this context because in this type of market the firms’ simultaneous play strategies lack credibility.Privatization; Mixed oligopoly; Strategic Trade Policy

Capacity precommitment and price competition yield the Cournot outcome

We introduce a simple model of oligopolistic competition where firms first build capacity, and then, after observing the capacity decisions, choose a reservation price at which they are willing to supply their capacities. This model describes many markets more realistically than the model of Kreps and Scheinkman [Kreps, D., Scheinkman, J., 1983. Quantity precommitment and Bertrand competition yield Cournot outcomes. Bell J. Econ. 14, 326–337]. We show that in this new model every pure strategy equilibrium yields the Cournot outcome, and that the Cournot outcome can be sustained by a pure strategy subgame perfect equilibrium.Publicad