COMPARING COURNOT DUOPOLY AND MONOPOLY WITH ASYMMETRIC DIFFERENTIATED GOODS

Abstract

This study compares a differentiated Cournot duopoly with a two-product monopoly by using the socially optimal solution as a reference point. Each solution is allowedto be either an interior or a corner solution. We establish that the ranking regarding each individual price is clear-cut and normal. In contrast, every one of the rankings regarding individual outputs and industry output can go either way. More importantly, the duopoly may be less welfare-efficient than the monopoly. For example, when demands are linear, lower welfare is achieved if the asymmetry between firms is strong enough. One reason is that when firms are asymmetric, the output structure in the duopoly is distorted with probability one, whereas the output structure in the monopoly is generally socially optimal.