Duopoly Information Equilibrium: Cournot and Bertrand

Posted: 16 Feb 2016

See all articles by Xavier Vives

Xavier Vives

University of Navarra - IESE Business School; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Abstract

In a duopoly model where firms have private information about an uncertain linear demand, it is shown that if the goods are substitutes (not) to share information is a dominant strategy for each firm in Bertrand (Cournot) competition. If the goods are complements the result is reversed. Furthermore the following welfare results are obtained:

(i) With substitutes in Cournot competition the market outcome is never optimal with respect to information sharing but it may be optimal in Bertrand competition if the products are good substitutes. With complements the market outcome is always optimal.

(ii) Bertrand competition is more efficient than Cournot competition.

(iii) The private value of information to the firms is always positive but the social value of information is positive in Cournot and negative in Bertrand competition

Keywords: Duopoly

JEL Classification: D34

Suggested Citation

Vives, Xavier, Duopoly Information Equilibrium: Cournot and Bertrand. Journal of Economic Theory, Vol. 34, No. 1, 1984, Available at SSRN: https://ssrn.com/abstract=2733016

Xavier Vives (Contact Author)

University of Navarra - IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

HOME PAGE: http://wwwapp.iese.edu/faculty/facultyDetail.asp?lang=en&prof=xv

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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