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Barbara J Spencer - One of the best experts on this subject based on the ideXlab platform.
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intra industry trade with bertrand and Cournot oligopoly the role of endogenous horizontal product differentiation
Research in Economics, 2015Co-Authors: James A. Brander, Barbara J SpencerAbstract:Abstract This paper investigates the effect of endogenous horizontal product differentiation on trade patterns and the gains from trade under Bertrand and Cournot oligopoly. If trade occurs, Bertrand firms always differentiate their products more that Cournot firms. However, sufficiently high differentiation costs can prevent product differentiation. Trade in homogeneous products never takes place under Bertrand competition. Bertrand firms will either differentiate their products or will not export. Cournot firms, however, may trade in either homogeneous or differentiated products. Product differentiation can significantly increase the gains from trade under both Cournot and Bertrand oligopoly.
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intra industry trade with bertrand and Cournot oligopoly the role of endogenous horizontal product differentiation
Social Science Research Network, 2015Co-Authors: James A. Brander, Barbara J SpencerAbstract:This paper investigates the effect of endogenous horizontal product differentiation on trade patterns and the gains from trade under Bertrand and Cournot oligopoly. Firms differentiate their products to mitigate competition, but only if the investment required is not too high. Investment in product differentiation takes place in a much wider range of cases and results in a greater difference between products under Bertrand than Cournot competition. In our model, trade in homogeneous products never takes place under Bertrand competition: Bertrand firms export only if they differentiate their products. Cournot firms may trade in either homogeneous or differentiated products. If there is trade, consumers tend to be better off with Bertrand than Cournot competition due to greater product differentiation and more aggressive pricing, but higher levels of investment can raise Bertrand profit above Cournot profit and also above the monopoly profit at autarky when investment costs are sufficiently low.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
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endogenous horizontal product differentiation under bertrand and Cournot competition revisiting the bertrand paradox
National Bureau of Economic Research, 2015Co-Authors: James A. Brander, Barbara J SpencerAbstract:This paper provides a new and simple model of endogenous horizontal product differentiation based on a standard demand structure derived from quadratic utility. One objective of the paper is to explain the “empirical Bertrand paradox” – the failure to observe homogeneous product Bertrand oligopoly, while homogeneous product Cournot oligopoly has significant empirical relevance. In our model firms invest in product differentiation if differentiation investments are sufficiently effective (i.e. if differentiation is not too costly). The threshold level of differentiation effectiveness needed to induce such investments is an order of magnitude less for Bertrand firms than for Cournot firms. Thus there is a wide range over which Bertrand firms differentiate their products but Cournot firms do not. If Cournot firms do choose to differentiate their products, corresponding Bertrand firms always differentiate more. We also establish the important insight that if product differentiation is endogenous Bertrand firms may charge higher prices and earn higher profits than corresponding Cournot firms, in contrast to the general presumption that Bertrand behavior is more competitive than Cournot behavior. Interestingly, consumer surplus increases with differentiation in the Cournot model but, due to sharply increasing prices, decreases with differentiation in the Bertrand model.
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intra industry trade with bertrand and Cournot oligopoly the role of endogenous horizontal product differentiation
National Bureau of Economic Research, 2015Co-Authors: James A. Brander, Barbara J SpencerAbstract:This paper investigates the effect of endogenous horizontal product differentiation on trade patterns and the gains from trade under Bertrand and Cournot oligopoly. Firms differentiate their products to mitigate competition, but only if the investment required is not too high. Investment in product differentiation takes place in a much wider range of cases and results in a greater difference between products under Bertrand than Cournot competition. In our model, trade in homogeneous products never takes place under Bertrand competition: Bertrand firms export only if they differentiate their products. Cournot firms may trade in either homogeneous or differentiated products. If there is trade, consumers tend to be better off with Bertrand than Cournot competition due to greater product differentiation and more aggressive pricing, but higher levels of investment can raise Bertrand profit above Cournot profit and also above the monopoly profit at autarky when investment costs are sufficiently low.
Claudia Kemfert - One of the best experts on this subject based on the ideXlab platform.
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a strategic model of european gas supply gasmod
Energy Economics, 2008Co-Authors: Franziska Holz, Christian Von Hirschhausen, Claudia KemfertAbstract:This paper presents a model of the European natural gas supply, GASMOD, which is structured as a two-stage-game of successive natural gas exports to Europe (upstream market) and wholesale trade within Europe (downstream market) and which explicitly includes infrastructure capacities. We compare three possible market scenarios: Cournot competition in both markets, perfect competition in both markets, and perfect competition in the downstream with Cournot competition in the upstream market (EU liberalization). We find that Cournot competition in both markets is the most accurate representation of today's European natural gas market, where suppliers at both stages generate a mark-up at the expense of the final customer (double marginalization). Our results yield a diversified supply portfolio with newly emerging (LNG) exporters gaining market shares. Enforcing competition in the European downstream market would lead to lower prices and higher quantities by avoiding the welfare-reducing effects of double marginalization. Binding infrastructure capacity restrictions strongly influence the results, and we identify bottlenecks mainly for intra-European trade relations whereas transport capacity in the upstream market is globally sufficient in the Cournot scenario.
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a strategic model of european gas supply gasmod
Research Papers in Economics, 2006Co-Authors: Franziska Holz, Christian Von Hirschhausen, Claudia KemfertAbstract:Structural changes in the European natural gas market such as liberalization, increasing demand, and growing import dependency have triggered new attempts to model this market accurately. This paper presents a model of the European natural gas supply, GASMOD, which is structured as a two-stagegame of successive natural gas exports to Europe (upstream market) and wholesale trade within Europe (downstream market), and which explicitly includes infrastructure capacities. We compare three possible market scenarios: Cournot competition on both markets, perfect competition on both markets, and perfect competition on the downstream with Cournot competition on the upstream market. We find that Cournot competition on both markets is the most realistic representation of today's European natural gas market, where suppliers at both stages generate a mark-up at the expense of the final customer (double marginalization). Our results yield a diversified supply portfolio with newly emerging (LNG) exporters gaining market shares. Enforcing perfect competition on the European downstream market would result in positive welfare effects. The limited infrastructure strongly influences the results, and we identify bottlenecks mainly for intra-European trade relations whereas transport capacity on the upstream market is sufficient (with the exception of Norwegian exports) in the Cournot scenario.
Luca Lambertini - One of the best experts on this subject based on the ideXlab platform.
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ranking bertrand Cournot and supply function equilibria in oligopoly
Energy Economics, 2016Co-Authors: Flavio Delbono, Luca LambertiniAbstract: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.
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inverted u aggregate investment curves in a dynamic game of advertising
Economics Letters, 2015Co-Authors: Luca Lambertini, Georges ZaccourAbstract:Abstract We revisit the relationship between market power and firms’ investment incentives in a noncooperative differential oligopoly game where firms sell differentiated goods and invest in advertising to increase the brand equity of their respective goods. The feedback equilibrium obtains under open-loop rules, and aggregate expenditure on goodwill takes an inverted-U shape under both Cournot and Bertrand behaviour, provided product differentiation is sufficiently high. Total industry expenditure is higher under Cournot competition.
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Cournot retrouve under price or supply function competition
2015Co-Authors: Flavio Delbono, Luca LambertiniAbstract: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.
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inverted u aggregate investment curves in a dynamic game of advertising
Research Papers in Economics, 2014Co-Authors: Luca Lambertini, Georges ZaccourAbstract:We revisit the relationship between market power and firms' investment incentives in a noncooperative differential oligopoly game in which firms sell differentiated goods and invest in advertising to increase the brand equity of their respective goods. The feedback equilibrium obtains under open-loop rules, and aggregate expenditure on goodwill takes an inverted-U shape under both Cournot and Bertrand behaviour, provided product differentiation is sufficiently high. Total industry expenditure is higher under Cournot competition.
James A. Brander - One of the best experts on this subject based on the ideXlab platform.
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intra industry trade with bertrand and Cournot oligopoly the role of endogenous horizontal product differentiation
Research in Economics, 2015Co-Authors: James A. Brander, Barbara J SpencerAbstract:Abstract This paper investigates the effect of endogenous horizontal product differentiation on trade patterns and the gains from trade under Bertrand and Cournot oligopoly. If trade occurs, Bertrand firms always differentiate their products more that Cournot firms. However, sufficiently high differentiation costs can prevent product differentiation. Trade in homogeneous products never takes place under Bertrand competition. Bertrand firms will either differentiate their products or will not export. Cournot firms, however, may trade in either homogeneous or differentiated products. Product differentiation can significantly increase the gains from trade under both Cournot and Bertrand oligopoly.
-
intra industry trade with bertrand and Cournot oligopoly the role of endogenous horizontal product differentiation
Social Science Research Network, 2015Co-Authors: James A. Brander, Barbara J SpencerAbstract:This paper investigates the effect of endogenous horizontal product differentiation on trade patterns and the gains from trade under Bertrand and Cournot oligopoly. Firms differentiate their products to mitigate competition, but only if the investment required is not too high. Investment in product differentiation takes place in a much wider range of cases and results in a greater difference between products under Bertrand than Cournot competition. In our model, trade in homogeneous products never takes place under Bertrand competition: Bertrand firms export only if they differentiate their products. Cournot firms may trade in either homogeneous or differentiated products. If there is trade, consumers tend to be better off with Bertrand than Cournot competition due to greater product differentiation and more aggressive pricing, but higher levels of investment can raise Bertrand profit above Cournot profit and also above the monopoly profit at autarky when investment costs are sufficiently low.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
-
endogenous horizontal product differentiation under bertrand and Cournot competition revisiting the bertrand paradox
National Bureau of Economic Research, 2015Co-Authors: James A. Brander, Barbara J SpencerAbstract:This paper provides a new and simple model of endogenous horizontal product differentiation based on a standard demand structure derived from quadratic utility. One objective of the paper is to explain the “empirical Bertrand paradox” – the failure to observe homogeneous product Bertrand oligopoly, while homogeneous product Cournot oligopoly has significant empirical relevance. In our model firms invest in product differentiation if differentiation investments are sufficiently effective (i.e. if differentiation is not too costly). The threshold level of differentiation effectiveness needed to induce such investments is an order of magnitude less for Bertrand firms than for Cournot firms. Thus there is a wide range over which Bertrand firms differentiate their products but Cournot firms do not. If Cournot firms do choose to differentiate their products, corresponding Bertrand firms always differentiate more. We also establish the important insight that if product differentiation is endogenous Bertrand firms may charge higher prices and earn higher profits than corresponding Cournot firms, in contrast to the general presumption that Bertrand behavior is more competitive than Cournot behavior. Interestingly, consumer surplus increases with differentiation in the Cournot model but, due to sharply increasing prices, decreases with differentiation in the Bertrand model.
-
intra industry trade with bertrand and Cournot oligopoly the role of endogenous horizontal product differentiation
National Bureau of Economic Research, 2015Co-Authors: James A. Brander, Barbara J SpencerAbstract:This paper investigates the effect of endogenous horizontal product differentiation on trade patterns and the gains from trade under Bertrand and Cournot oligopoly. Firms differentiate their products to mitigate competition, but only if the investment required is not too high. Investment in product differentiation takes place in a much wider range of cases and results in a greater difference between products under Bertrand than Cournot competition. In our model, trade in homogeneous products never takes place under Bertrand competition: Bertrand firms export only if they differentiate their products. Cournot firms may trade in either homogeneous or differentiated products. If there is trade, consumers tend to be better off with Bertrand than Cournot competition due to greater product differentiation and more aggressive pricing, but higher levels of investment can raise Bertrand profit above Cournot profit and also above the monopoly profit at autarky when investment costs are sufficiently low.
Flavio Delbono - One of the best experts on this subject based on the ideXlab platform.
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ranking bertrand Cournot and supply function equilibria in oligopoly
Energy Economics, 2016Co-Authors: Flavio Delbono, Luca LambertiniAbstract: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.
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Cournot retrouve under price or supply function competition
2015Co-Authors: Flavio Delbono, Luca LambertiniAbstract: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.
