The Cournot-Bertrand Profit Differential in a Differentiated Duopoly with Unions and Labour Decreasing Returns

Abstract

This paper compares Cournot and Bertrand equilibria in a differentiated duopoly (with imperfect substitutes), total wage bill maximizing unions and labour decreasing returns. It is shown that the standard result, that equilibrium profits are always higher under Cournot, may be reversed even for a fairly low degree of product differentiation. Moreover, the presence of labour decreasing returns tends to reinforce the mechanisms that contribute to the reversal result, making this event possible for a wider range of situations, with respect to those identified by the earlier literature.Cournot-Bertrand profit differential, unions, labour decreasing returns