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Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes
David M. Kreps and Jose A. Scheinkman
The Bell Journal of Economics
Vol. 14, No. 2 (Autumn, 1983), pp. 326-337
Published by: RAND Corporation
Stable URL: http://www.jstor.org/stable/3003636
Page Count: 12
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Bertrand's model of oligopoly, which gives perfectly competitive outcomes, assumes that: (1) there is competition over prices and (2) production follows the realization of demand. We show that both of these assumptions are required. More precisely, consider a two-stage oligopoly game where, first, there is simultaneous production, and, second, after production levels are made public, there is price competition. Under mild assumptions about demand, the unique equilibrium outcome is the Cournot outcome. This illustrates that solutions to oligopoly games depend on both the strategic variables employed and the context (game form) in which those variables are employed.
The Bell Journal of Economics © 1983 RAND Corporation