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Reversal of Bertrand–Cournot Rankings in the Presence of Welfare Concerns

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We revisit the comparison between Bertrand and Cournot competition in a symmetric differentiated oligopoly where each firm maximizes a weighted average of its own profit and welfare. Under very general specifications, Bertrand competition yields higher prices and profits, and lower quantities, consumer surplus, and welfare than Cournot when the weight on profit is lower than a threshold value. The threshold weight on profit (welfare) can be arbitrarily close to unity (zero) for both quadratic and CES utilities. Particularly striking is the following asymptotic result for CES: irrespective of the degree of substitutability, the threshold weight on profit tends to unity as the number of firms approaches infinity.
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Document Type: Research Article

Publication date: 2014-09-01

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  • Founded as Zeitschrift für die gesamte Staatswissenschaft in 1844.

    As one of the oldest journals in the field of political economy, the Journal of Institutional and Theoretical Economics (JITE) deals traditionally with the problems of economics, social policy, and their legal framework. JITE is listed in the Journal of Economic Literature, the Social Science Citation Index, the International Bibliography of the Social Sciences, and COREJ.

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