Economists use various models to explain why it is that firms are capable of pricing above marginal cost. In this paper, we will examine two of them: the Cournot and Bertrand duopoly models. Economists generally accept both models as good explanations of the phenomenon, but the two models contradict each other in various important ways. The puzzle is that two inconsistent explanations are both regarded as good explanations for the same phenomenon. This becomes especially worrisome when the two models (...) are offering divergent policy recommendations. This report presents that puzzle by laying out how the two models contradict each other in a myriad of ways and then offers five possible solutions to that puzzle from various economists, philosophers of science, and philosophers of economics. (shrink)

Technology licensing as a vital part of business behavior in many industries has drawn a fair amount of attention in industrial organization literature. Most existing literature on licensing decisions assumes that all firms engage in Cournot or Bertrand competition, while the type of mixed competition may affect the choice of the licensor. In this context, what decision will the licensor make faced with different mixed competitions? This paper studies the optimal technology licensing contract of a licensor firm (...) engaging in different mixed competitions with a potential licensee in a differentiated duopoly market considering one upstream firm that provides key inputs. We find that if either the royalty or fixed-fee licensing is applied, the licensor favors royalty licensing under Bertrand-Cournot competition when the degree of substitution is small and prefers the fixed-fee licensing no matter under what kind of mixed competition as the degree of substitution increases. In the case of fixed-fee licensing, the result shows that the profits of licensors are the same under different types of mixed competition. Besides, fixed-fee licensing is not always the optimal choice for consumers, and they would prefer royalty licensing when the degree of substitution is very small. (shrink)

Two questions are examined within a model of vertical differentiation. The first is whether cost-reducing innovations are more likely to be observed in regimes of more intense or less intense competition. Following Delbono and Denicolo (1990) and Bester and Petrakis (1993) we compare two identical industries that differ only in the regime of competition: Bertrand versus Cournot. Since Cournot competition leads to lower output and higher prices, it can be thought of as a regime of (...) less intense competition. We find that the increase in profits associated with any given cost reduction is higher in the case of Cournot competition than in the case of Bertrand competition. Thus there are cost-reducing innovations that would be pursued under Cournot competition but not under Bertrand competition. (shrink)

In this article, we revisit the classic comparison between Bertrand and Cournot competition in the presence of a cartel of firms that faces outsiders acting individually. This competition setting enables to deal with both non-cooperative and cooperative oligopoly games. We concentrate on industries consisting of symmetrically differentiated products where firms operate at a constant and identical marginal cost. First, while the standard Bertrand–Cournot rankings still hold for Nash equilibrium prices, we show that the results may be (...) altered for Nash equilibrium quantities and profits. Second, we define cooperative Bertrand and Cournot oligopoly games with transferable utility on the basis of their non-cooperative foundation. We establish that the core of a cooperative Cournot oligopoly game is strictly included in the core of a cooperative Bertrand oligopoly game when the number of firms is lower or equal to 25. Moreover, we focus on the aggregate-monotonic core, a subset of the core, that has the advantage to select point solutions satisfying both core selection and aggregate monotonicity properties. We succeed in comparing the aggregate-monotonic cores between Bertrand and Cournot competition regardless of the number of firms. Finally, we study a class of three-firm oligopolies with asymmetric costs in which the core inclusion property mentioned above still holds. We also provide numerical examples to illustrate the difficulty to generalize this result to an arbitrary number of firms because of negative equilibrium quantities. (shrink)

This paper studies the entry strategies of firms on risky markets. We focus on markets where demand is affine and cost is linear; moreover, the demand includes a normally distributed random variable. In such a model, we show that the leader’s strategy changes with the level of market risk even when firms are risk neutral. Therefore, the availability of future information for a Stackelberg follower has a feedback effect on the leader’s strategy. We also show that compared with traditional markets (...) with no risk, the basic trade-off between flexibility and pre-commitment is only slightly changed in the qualitative game where firms are free to choose when to enter the market. (shrink)

We study an extension of Stackelberg’s model in which many firms can produce at many different times. Demand is affine, while cost is linear. In this setting, we investigate whether Stackelberg’s results in a two-firm game are robust when the number of firms increases. We show that firms may not need to anticipate further entries, leaders might earn less than in the simultaneous game, and, whatever its cost and its time of entry, the firm’s entry always improves welfare.

Perfect competition provides the model of a frictionless economy, in which price-setting economic agents behave independently of each other, abandoning to the market the coordination of their individual decisions. The implications of this model are extensively presented in the traditional price theory textbooks. Imperfect competition is the paradigm that develops as soon as economic agents interact in a conscious manner, which is the rule when competition takes place amongst a restricted number of agents. In this system, agents (...) act strategically, taking into account the impact of their decisions on competitors' behaviour and on the price mechanism. Such situations commonly arise when firms differentiate their products, erect strategic entry barriers, or exploit the imperfect information of their customers about the price or characteristics of their product. This book explores the theoretical richness of these economic contexts, using some basic tools of game theory. Designed as an ancillary text for graduate students, it not only summarizes the historic contributions made by economic theorists such as Cournot and Edgeworth, but also makes accessible many of the most recent developments in the same field. (shrink)

This paper considers a one-stage Cournot duopoly of R&D. We characterize the Nash equilibrium of the one-stage game and provide a comparison with the two-stage version of the same Cournot model of R&D/product market competition. We look at R&D expenditures, profits, output and welfare. Under perfect symmetry, the one-stage model always leads to higher profits when the spillover parameter is not equal to 1/2. Moreover, the one-stage model implies more R&D expenditure and higher welfare if and only (...) if the spillover parameter is greater than 1/2. The insights are robust to an n -firm generalization, but the differences between the one-stage game and the two-stage game disappear as the market becomes perfectly competitive. (shrink)

Recent empirical research demonstrates that cross-holding engenders significant anti-competitive effect even though it confers no decisive influence on the target firm. This research has obtained wide attention, which leads to both calls for and actual changes in antitrust policy. However, the effects of cross-holding on competition are not well established. This paper examines the collusive effect of cross-holding with asymmetry in cost functions across firms in an infinitely repeated Cournot duopoly game. The two firms have a different share (...) of capital that affects marginal costs. We find that cross-holding facilitates collusion when a small firm (i.e., a firm with a small capital capacity) increases its passive ownership in a big firm (i.e., a firm with a large capital capacity), and the size of initial ownership is relatively small. Unexpectedly, collusion becomes more difficult to be sustained when a big firm increases ownership in a small firm, or when a small firm increases ownership in a big firm but the initial ownership is relatively large. Our result that cross-holding may either facilitate or hinder collusion, under certain circumstances, generates important implications for antitrust policy. (shrink)

Pricing algorithms are computerized procedures a seller may use to adapt instantaneously its price to market conditions, including to prices quoted by its rivals. These algorithms are related to the extensive use of web-collectors which contribute in many industries to identifying the best price. In such settings, price competition operates between algorithms, no longer between executives of brick and mortar companies. In this context, the question is to know how implicit forms of collusion may arise between the sellers. This (...) paper is aimed at discussing this conceptual issue in a price-setting homogeneous product oligopoly with decreasing returns to scale where algorithms implement matching policies. Using fixed point argument, we find a family of equilibrium prices encompassing Cournot and Pareto efficient solutions, if matching is allowed upward and downward. Dynamical stability is studied in the linear demand constant return case. When matching operates only for price undercutting, this family is extended up to a bottom value of the market price, close to the Walrasian price. Pricing algorithms may solve the Bertrand–Edgeworth paradox. (shrink)

This paper explores the role of inequity aversion as an explanation for observed behavior in experimental Cournot oligopolies. We show that inequity aversion can change the nature of the strategic interaction: quantities are strategic substitutes for sufficiently asymmetric output levels but strategic complements otherwise. We find that inequity aversion can explain why: some experiments result in higher than Cournot–Nash production levels while others result in lower, collusion often occurs with only two players whereas with three or more players (...) market outcomes are very close to Cournot–Nash, and players often achieve equal profits in asymmetric Cournot oligopoly. (shrink)

Historians of philosophy have hitherto either given scant attention to Cournot and Renouvier’s views on scientific revolution, tried to read Kuhn’s concept of scientific revolution back into their works, or did not fully appreciate the extent to which these philosophers were reflecting on the works of their predecessors as well as on developments in mathematics and the sciences. Cournot’s views on cumulative development through revolution resemble Comte’s more than Kuhn’s, and his notion of progressive theoretical simplicity through revolution (...) recalls Whewell’s philosophy of science. Renouvier, far from regarding a scientific revolution as resulting in a new set of conceptual boxes imposing a conformity of thought on the scientific community, recognized that a new theory proposed during a revolution is open to more than one interpretation. (shrink)

This paper presents a new theoretical justification for the Cournot–Bertrand model to arise in equilibrium when firms have, at the outset, the same cost structure and sell symmetrically differentiated products. The Cournot–Bertrand model assumes some firms compete on price, adjusting their production to meet demand, while others set quantities and let their price adjust until market equilibrium is reached. We show that this may occur endogenously due to the possibility of entry, which may be deterred when some of (...) the incumbents decide to set prices, while others free ride on this behavior and choose quantities. (shrink)

Augustin Cournot (1801-1877) a marqué l'histoire de la pensée économique en introduisant la modélisation des phénomènes économiques, et non leur seule quantification. Ce constat appelle une double question : 1° Comment la rupture opérée par Cournot s'inscrit-elle dans l'histoire et l'évolution des méthodes de l'économie? La question se pose d'autant plus que les Recherches sur les principes mathématiques de la théorie des richesses passèrent d'abord presque inaperçues. 2° Que reste-t-il aujourd'hui de ce tournant effectué par le «philosophe-géomètre»? Autrement (...) dit, comment penser l'actualité de l'œuvre économique de Cournot? Or, avant d'être un économiste, Cournot est d'abord mathématicien et philosophe. Comment son œuvre économique s'accorde-t-elle alors avec son activité de mathématicien, et comment prend-elle place dans sa réflexion philosophique, c'est-à-dire à la fois dans sa théorie de la connaissance et dans sa philosophie de l'action et de la décision? Comprendre la portée de l'œuvre économique de Cournot et sa place dans son œuvre multiforme, tel est le projet qui anime le présent ouvrage où économistes, philosophes, historiens des sciences et sociologue entrecroisent leurs approches de celui qui demeure l'un des économistes et des philosophes majeurs du XIXe siècle."--Page 4 of cover. (shrink)

This text reconsiders the philosophizing into the future of mankind and futurology done by molecular biologist Gunther Stent in *The Coming of the Golden Age* in the light of Raymond Ruyer's critical notice published in the aftermath of the publication of Stent's book in French translation. For Ruyer, it is an occasion to revisit his own take on what he called in his last work a "theology of the opposition between the organic and the rational," and to restate in a (...) new light his conclusions concerning Cournot's suggestion as to the becoming of social relationships in a context of management of complexity of association. It is argued here that both Stent and Ruyer share a common thermodynamic, informational, and also surprisingly Nietzschean ascendency in judging of the possible outcomes for the human race. (shrink)

According to Antoine Augustine Cournot, chance events are the result of the intersection between independent causal chains. This coincidental notion of chance is not a new one, but—as Cournot remarks—it comes from Saint Thomas Aquinas, Boethius, and more probably from Jean de La Placette. Such a conception of chance phenomena seems to be very important, not only because it is closely related to the Principle of Causality, but also since it grounds Cournot’s theory of objective probability. Starting (...) from Martin’s work, the main attempt of this survey is to endorse the idea that Cournot’s coincidental notion of hasard is objective, that is it is ontic and it does not depend—in some sense—on our degree of knowledge. In order to do that, a central role in the discussion will be given to the meaning of the independence between the intersecting causal chains and to Cournot’s conception of causation. (shrink)

C'est un ouvrage remarquable à bien des égards que Claude Ménard, qui est né au Québec en 1944 et a étudié en France l'histoire des sciences et l'économie avant d'enseigner l'histoire aux Pays-Bas, a récemment publié chez Flammarion sous le titre La formation d'une rationalité économique: A. A. Cournot. L'épistémologue des sciences sociales y trouvera une analyse intelligente et documentée d'une contribution qui occupe, par rapport à la formation de l'économie moderne, une place qui n'a probablement d'équivalent dans aucune (...) autre discipline. L'historien de la philosophie, tout autant que celui de l'économie, y appréciera l'éclairage neuf jeté sur l'œuvre d'un penseur dont l'importance a toujours été méconnue malgré le fait – ou peut-être plutôt à cause du fait – qu'au milieu du XIXe siècle, il se consacrait à des questions théoriques qui souvent n'allaient devenir importantes que pour les hommes du XXe siècle. L'historien des idées saura gré à l'auteur d'avoir su situer son analyse de la contribution de Cournot dans le contexte plus large des institutions et des idées qui ont fait du XIXe siècle le moment décisif de la reformulation moderne des idéologies. L'analyste des idéologies y trouvera donc aussi matière à réflexion puisque le rapport des sciences sociales et des idéologies y est abondamment discuté encore que, comme je chercherai à le montrer, le traitement proposé risque davantage, sur ce point, de laisser le lecteur sur sa faim. (shrink)

This paper seeks to rehabilitate the trade theory of Augustin Cournot. In contrast to the widespread awareness among neoclassical economists of Cournot's contribution to microeconomics, there is general ignorance of his trade theory, which an earlier generation of neoclassical theorists attributed to its erroneous conclusions. I dispute this view and attempt to show the internal consistency of Cournot's trade analysis. While the assumptions underpinning his trade theory could be considered extreme, they need to be understood in the (...) light of his methodological commitments, which included a rejection of utility in the theory of wealth, and a dismissal of Say's law regarding general employment. Furthermore, I argue that the assumptions underpinning neoclassical trade theory are no less extreme, even as their theoretical conclusions are (similarly) logically consistent. All of this serves to highlight the insufficiency of theoretical rigour in establishing the relevance of a theory; the importance of history of thought in reminding us that more than one theoretical perspective exists; and, of course, the indispensability of empirical engagement in trying to arbitrate between contrasting theoretical positions. (shrink)

In cooperative Cournot oligopoly games, it is known that the β-core is equal to the α-core, and both are non-empty if every individual profit function is continuous and concave (Zhao, Games Econ Behav 27:153–168, 1999b). Following Chander and Tulkens (Int J Game Theory 26:379–401, 1997), we assume that firms react to a deviating coalition by choosing individual best reply strategies. We deal with the problem of the non-emptiness of the induced core, the γ-core, by two different approaches. The first (...) establishes that the associated Cournot oligopoly Transferable Utility (TU)-games are balanced if the inverse demand function is differentiable and every individual profit function is continuous and concave on the set of strategy profiles, which is a step forward beyond Zhao’s core existence result for this class of games. The second approach, restricted to the class of Cournot oligopoly TU-games with linear cost functions, provides a single-valued allocation rule in the γ-core called Nash Pro rata (NP)-value. This result generalizes Funaki and Yamato’s (Int J Game Theory 28:157–171, 1999) core existence result from no capacity constraint to asymmetric capacity constraints. Moreover, we provide an axiomatic characterization of this solution by means of four properties: efficiency, null firm, monotonicity, and non-cooperative fairness. (shrink)

All research is immersed in the competition for knowledge, but this is not always governed by fairness. In this opinion article, I elaborate on indicators of unfairness to be found in both evaluation guides and evaluation panels, and I spontaneously offer a number of rules of thumb meant to keep it at bay. Although they are explicitly offered to the Portuguese Foundation for Science and Technology (FCT) and in particular to the evaluation panel for Philosophy, Ethics and Religion of (...) FCT's fifth edition of their Individual Call to Scientific Employment Stimulus, here used as concrete illustrations of unfairness, my rules of thumb are guaranteed to promote fairness in the competition for knowledge in general. (shrink)

A quadratic utility function is introduced in this paper to study the dynamic characteristics of Cournot duopoly game. Based on the bounded rationality mechanism, a discrete dynamical map that describes the game’s dynamic is obtained. The map possesses only one equilibrium point which is Nash point. The stability conditions for this point are analyzed. These conditions show that the point becomes unstable due to two bifurcation types that are flip and Neimark–Sacker. The synchronization property for that map is studied. (...) Through local and global analysis, some dynamics of attracting sets are investigated. This analysis gives some insights on the basis of those sets and the shape of the critical curves. It also shows some lobes found in those attracting sets which are constructed due to the origin focal point. (shrink)

Games have a complex, and seemingly paradoxical structure: they are both competitive and cooperative, and the competitive element is required for the cooperative element to work out. They are mechanisms for transforming competition into cooperation. Several contemporary philosophers of sport have located the primary mechanism of conversion in the mental attitudes of the players. I argue that these views cannot capture the phenomenological complexity of game-play, nor the difficulty and moral complexity of achieving cooperation through game-play. In this paper, (...) I present a different account of the relationship between competition and cooperation. My view is a distributed view of the conversion: success depends on a large number of features. First, the players must achieve the right motivational state: playing for the sake of the struggle, rather than to win. Second, successful transformation depends on a large number of extra-mental features, including good game design, and social and institutional features. (shrink)

In four new and nine previously published essays, Joseph Heath provides a compelling new framework for thinking about the moral obligations of economic actors. The "market failures" approach to business ethics that he develops provides the basis for a unified theory of business ethics, corporate law, economic regulation, and the welfare state.

Competition plays a substantial and structural role in philosophy today. It is therefore remarkable that it has received little systematic ethical scrutiny in the literature until now. This paper aims to contribute to establishing a discussion about competition in the discipline of philosophy by arguing (i) that philosophy is not inherently competitive and (ii) that competition tends to corrupt the practice of philosophy. Regarding (i), I argue that philosophy can best be understood as a cooperative endeavour. The (...) idea that philosophy is a matter of competitive adversarial argumentation impedes philosophers from achieving what philosophy is all about, that is, realising what Alasdair MacIntyre calls ‘internal goods’: acquiring greater wisdom and knowledge and getting closer to the truth. I then show that a lot of the competition that characterises today’s practice of philosophy revolves around obtaining external goods, such as money, status, prizes and academic positions. While external goods are needed to sustain and regulate the practice of philosophy, competition for such goods also tends to corrupt the practice (ii), by which I mean that internal goods are seriously compromised. This, in turn, excludes prospective philosophers who are not ‘competitive’ enough, which is also a loss for philosophy generally. (shrink)