Dynamic Bertrand and Cournot competition: Asymptotic and computational analysis of product differentiation

Andrew Ledvina, Kaushik Ronnie Sircar

Research output: Contribution to journalArticle

1 Scopus citations

Abstract

We study continuous time oligopolies in which a small number of firms producing similar goods compete with one another by setting prices or quantities. We study a deterministic version of the problem using an asymptotic expansion of the relevant HJB partial differential equations. We find in this setting that for firms with highly differentiated goods, the type of competition matters little. For less differentiated goods, we find that the Cournot type market produces a greater value to the firms than the Bertrand type market. We then study a stochastic version of the two games using numerical techniques. This allows us to compare firms with a greater degree of product differentiation. The value is still greater to firms in most scenarios in a Cournot market, but in some situations the classical Bertrand-Cournot dichotomy is reversed.

Original languageEnglish (US)
Pages (from-to)149-165
Number of pages17
JournalRisk and Decision Analysis
Volume3
Issue number3
DOIs
StatePublished - Jul 23 2012

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Finance
  • Statistics, Probability and Uncertainty
  • Statistics and Probability

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