Cournot–Bertrand comparison under common ownership in a mixed oligopoly

Xu, Lili and Zhang, Yidan and Matsumura, Toshihiro (2022): Cournot–Bertrand comparison under common ownership in a mixed oligopoly.

Abstract

Price competition is more intense than quantity competition in private oligopolies, wherein all firms are profit maximizers. However, in mixed oligopolies where one state-owned public firm competes with profit-maximizing private firms, price competition may not provide tougher competition than quantity competition. In this study, we introduce common ownership, a distinct feature of recent financial markets, into a mixed oligopoly model and investigate how common ownership affects this ranking. We find that under common ownership, quantity competition is likely to be tougher than price competition. Moreover, we find that common ownership harms welfare regardless of competition mode. Common ownership enhances private firms’ profits under Bertrand competition while these may decline under Cournot competition.

• Item Type: MPRA Paper
• Language: English
• Keywords: Cournot model; Bertrand model; common ownership; mixed oligopoly
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; H - Public Economics > H4 - Publicly Provided Goods > H42 - Publicly Provided Private Goods; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets

References

Backus, M., Conlon, C., Sinkinson, M., 2021. Common ownership in America: 1980-2017. American Economic Journal: Microeconomics 13(3), 273-308.

Bárcena-Ruiz, J.C., Garzón, M.B., 2020. Disclosure of R&D knowledge in a mixed duopoly. Manchester School 88(4), 584-598.

Bárcena-Ruiz, J.C., Sagasta, A., 2022. International trade and environmental corporate social responsibility. Energy Economics (forthcoming), 106104.

Chen, L., Matsumura, T., Zeng, C., 2021. Welfare consequence of common ownership in a vertically related market. Journal of Industrial Economics, forthcoming.

Dastidar, K.G., 1997. Comparing Cournot and Bertrand in a homogeneous product market. Journal of Economic Theory 75(1), 205-212.

De Fraja, G., Delbono, F., 1989. Alternative strategies of a public enterprise in oligopoly. Oxford Economic Papers 41(2), 302-311.

Dixit, A.K., 1979. A model of duopoly suggesting a theory of entry barriers. Bell Journal of Economics. 10(1), 20-32.

Fukuda, K., Ouchida, Y., 2020. Corporate social responsibility (CSR) and the environment: Does CSR increase emissions? Energy Economics 92, 104933.

Ghosh, A., Mitra, M., 2010. Comparing Bertrand and Cournot in mixed markets. Economics Letters 109(2), 72-74.

Haraguchi, J., Matsumura, T., 2016. Cournot-Bertrand comparison in a mixed oligopoly. Journal of Economics 117(2), 117-136.

Haraguchi, J., Matsumura, T., 2020. Endogenous public and private leadership with diverging social and private marginal costs. Manchester School 88(5), 699-730.

Hirose, K., Lee, S.H., Matsumura, T., 2020. Noncooperative and cooperative environmental corporate social responsibility. Journal of Institutional and Theoretical Economics 176(3), 549-571.

Hirose, K., Matsumura, T., 2022. Common ownership and environmental corporate social responsibility. Energy Economics, 106269.

Lee, S.H., Park, C., 2019. Eco-firms and the sequential adoption of environmental corporate social responsibility in the managerial delegation. The B.E. Journal of Theoretical Economics 19(1), 20170043.

López, Á.L., Vives, X., 2019. Overlapping ownership, R&D spillovers, and antitrust policy. Journal of Political Economy 127(5), 2394-2437.

Matsumura, T., 1998. Partial privatization in mixed duopoly. Journal of Public Economics 70(3), 473-483.

Moreno, D., Petrakis, E., 2022. The impact on market outcomes of the portfolio selection of large equity investors. Economics Letters 212, 110296.

Poyago-Theotoky, J., Yong, S., 2019. Managerial delegation contracts, green R&D and emissions taxation. The B.E. Journal of Theoretical Economics 19(2), 20170128.

Sato, S., Matsumura, T., 2020. Free entry under common ownership. Economics Letters 195, 109489.

Shubik, M., Levitan, R., 1980. Market Structure and Behavior. Harvard University Press, Cambridge, Massachusetts, USA.

Singh, N., Vives, X., 1984. Price and quantity competition in a differentiated duopoly. The Rand Journal of Economics 15(4), 546-554.

Vickers, J., 1985. Delegation and the theory of the firm. The Economic Journal 95, 138-147.

Vives, X., 1999. Oligopoly Pricing: Old Ideas and New Tools. MIT Press, Cambridge, MA, London, England.

Xu, L., Chen, Y., Lee, S.H., 2022. Emission tax and strategic environmental corporate social responsibility in a Cournot-Bertrand comparison. Energy Economics 107, 105846.

Xu, L., Matsumura, T., 2022. Welfare-reducing price competition under relative performance delegation with convex costs. Economic Modelling 112, 105871.