Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes

Issue: Autumn 1983

Pages: pp. 326-337

Authors: David M. Kreps and José A. Scheinkman

Title: Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes

Abstract: 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.

Microeconomics Theory of Firm and Industry under Imperfectly Competitive Market Structures (0226)

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