Bertrand-Cournot profit reversal under non-commitment process innovation

Abstract

We provide a new reason for Bertrand-Cournot profit reversal. In a symmetric oligopoly, we show that firms get higher profits under Bertrand competition compared to Cournot competition under non-commitment process innovation if the products are sufficiently differentiated and there is positive knowledge spillover. As the number of firms increases, the degree of product differentiation over which the profits are higher under Bertrand competition can increase. Higher outputs under Bertrand competition compared to Cournot competition generate higher R&D investments under the former than the latter, which is responsible for our result.