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Title:The market for melons: Cournot competition with unobserval qualities PDF Logo
Authors:Argenton, Cédric
Issue Date:2006
Series/Report no.:SSE/EFI Working Paper Series in Economics and Finance 617
Abstract:Two firms produce different qualities at possibly different, constant marginal costs. They compete in quantities on a market where buyers only observe the average quality supplied. The model is a generalization of the standard Cournot duopoly, which corresponds to the special case where the two qualities are equal. When the quality differential is large, the firms' output levels are not always strategic substitutes. There can be no, or up to three pure-strategy equilibria. Yet, as long as the cost differential is not extreme, there always exists a stable duopolistic equilibrium. In that sense, strategic quantity-setting helps prevent market unraveling.
Subjects:Cournot competition
quality
duopoly
asymmetric information
Nash equilibrium
JEL:D43
D82
L13
L15
Document Type:Working Paper
Appears in Collections:SSE/EFI Working Paper Series in Economics and Finance, EFI - The Economic Research Institute, Stockholm School of Economics

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