CRIEFF Discussion Paper Number 0613
Competitiveness
and Conjectural Variation in Duopoly Markets
Jim Jin and Osiris J. Parcero
Abstract
Duopoly competition can take different forms: Bertrand, Cournot, Bertrand-Stackelberg, Cournot-Stackelberg
and joint profit maximization. In comparing these market structures this paper
make three contributions. First, we find a clear price (output) ranking among
these five markets when goods are substitutes (complements). Second, these
rankings can be explained by different levels of conjectural variation
associated with each market structure. Third, in a more general non-linear duopoly
model we find that CV in prices tends to hurt consumers, while CV in quantities
is often good for social welfare. In this last case the policy recommendation for
regulators seems to be to encourage the establishment of firms’ reputation in quantity
responses, but to discourage it in price responses.
JEL Classifications: L11, L13, D43
Keywords:
Optimal Bertrand, Cournot, Stackelberg, monopoly,
ranking, conjectural variation.
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