7/1999
February
Welfare in a Differentiated Oligopoly with Free Entry: A Cautionary Note
 
Roberto Cellini - Luca Lambertini - Gianmarco I.P. Ottaviano


We model a free entry equilibrium in a differentiated oligopoly where firms compte either in prices or in quantities. We prove that Cournot competition allow for a larger number of firms to survive in equilibrium. Hence, the conventional wisdom on industry output and social welfare may not hold. In fact, we prove that there exists a region of parameters where the aggregate output level as well as social surplus are larger under Cournot than Bertrand competition.

 
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