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Title: Differentiated Duopoly with Asymmetric Costs
Authors: Zanchettin, Piercarlo
First Published: 2006
Citation: Journal of Economics and Management Strategy, 2006, 15 (4), pp.999-1015
Abstract: 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.
DOI Link: 10.1111/j.1530-9134.2006.00125.x
ISSN: 1058-6407
Type: Article
Appears in Collections:Published Articles, Dept. of Economics

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