Bertrand versus Cournot with Convex Variable Costs

Within a simple model of homogeneous oligopoly, we show that the traditional ranking between Bertrand and Cournot equilibria may be reversed. For price setting entails a continuum of price equilibria under convex variable costs, departure from marginal cost pricing may be observed. As a consequence, Bertrand-Nash equilibrium profits (welfare) may be higher (lower) than Cournot-Nash ones. The reversal of the standard rankings occurs when pricing strategies mimic collusive behaviour

Horizontal Mergers with Capital Adjustments: Workers' Cooperatives and the Merger Paradox

We study the incentives towards horizontal merger among firms when the amount of capital is the strategic variable. The type of firms we focus on is workers' cooperatives, but our conclusions apply also to employment-constrained profit maximisers. Within a simple oligopoly model, we prove that the horizontal merger, for any merger size, is: (i) privately efficient for insiders as well as for outsiders; (ii) socially efficient if market size is large enough, including the case of merger to monopoly

Co-Production and Managed Competition in Mixed Quasi-markets

In this paper, we provide a very simple model to shed light on the issue of managed competition in mixed quasi-markets (i.e. regulated markets in which social and for-proÖt Örms coexist). In doing this, we consider the literature on mixed oligopolies as a reasonable reference point and try to enrich it with the idea of quasi-market. Firstly, our results show that social Örms serve the relatively richer portion of the population. Only relatively poor consumers buy units of service from the proÖt-oriented Örm. Secondly, the socially-preferable form of managed competition is to introduce coproduction practices and, hence, to raise proÖt-oriented Örmís production costs. The diffusion of coproduction paradigms ensures maximal service quality and eliminates mark-up from the market

Cournot Retrouvé under Price or Supply Function Competition

This paper aims at participating in the long-lasting debate about the analytical foundations of the Cournot equilibrium. In a homogeneous oligopoly, under standard regularity conditions, we prove that Cournot-Nash emerges both under (i) price competition and Cournot conjectures; and (ii) supply function competition with ex post market clearing. We demonstrate both results within a model of exogenous product differentiation

On the collusive nature of managerial contracts based on comparative performance

We show that managerial delegation based upon comparative performance may generate collusive outcomes observationally equivalent to those typically associated with repeated games or cross ownership. This happens when rivals\u2019 profits are positively weighted in the managerial incentive scheme. We also identify the level of time discounting at which a repeated game based upon Nash reversion would achieve the same degree of collusion. Accordingly, such managerial contracts should attract the attention of antitrust authoritie

Optimal firms' mix in oligopoly with twofold environmental externality

We charaterise the socially optimal mix of firms in an oligopoly with both profit-seeking and labour-managed firms. The policy maker faces a twofold externality: (i) production entails the exploitation of a common pool natural resource and (ii) production/consumption pollutes the environment. We study the relationship between firms' mix and social welfare in the Cournot-Nash equilibrium of the industry and the resulting policy implications

Nationalization as credible threat against tacit collusion

Within a simple model of differentiated oligopoly, we show that tacit collusion may be prevented by the threat of nationalising a private firm coupled with the appropriate choice of the weight given to private profits in the maximand of the nationalised company. We characterise the properties of such a threat and prove that it may allow to credibly deter tacit collusion

On the Observational Equivalence of Unilateral Delegation Contracts in Duopoly

In a Cournot duopoly, if only one firm hires a manager while the other remains entrepreneurial, the Cournot-Stackelberg equilibrium emerges, with the managerial firm as the leader. This happens under at least three different delegation schemes. We illustrate the different meachanisms driving this outcome through the analysis of the map of best replies at the market stage

Optimal Participation Income and Negative Income Tax in poverty Alleviation Programs

We compare two different redistributive policies specifically designed to alleviate poverty. The first one is inspired to the idea of participation income, the second focused on the introduction of a negative income tax. Briefly characterizing an economy with workers and non-workers and using income as evaluation space for poverty, we determine optimality conditions of both measures under a flat rate labor income tax. Finally, we emphasize a necessary condition for these measures to mitigate poverty

Ranking Bertrand, Cournot and Supply Function Equilibria in Oligopoly

We show that the standard argument according to which supply function equilibria rank intermediate between Bertrand and Cournot equilibria may be reversed. We prove this result within a static oligopolistic game in which both supply function competition and Cournot competition yield a unique Nash equilibrium, whereas price setting yields a continuum of Nash equilibria. There are parameter regions in which Bertrand profits are higher than Cournot ones, with the latter being higher than in the supply function equilibrium. Such reversal of the typical ranking occurs when price-setting mimics collusion. We then show that the reversal in profits is responsible for a reversal in the welfare performance of the industry