TITLE:
Quantity Competition and Price Competition with a Duopoly in a Consumer-Friendly Firm: A Welfare Analysis
AUTHORS:
Yasuhiko Nakamura
KEYWORDS:
Consumer-Friendly Firm; Degree of Product Differentiation; Extent of Importance of Consumer Surplus
JOURNAL NAME:
Modern Economy,
Vol.4 No.11,
November
26,
2013
ABSTRACT: This paper conducts a welfare analysis in a duopoly with
differentiated and substitutable goods composed of one consumer-friendly firm
and one absolute profit maximizing firm. We suppose that the consumer-friendly
firm maximizes the weighted sum of its absolute profit and consumer surplus. In
such a duopoly, when the degree of product differentiation is sufficiently high
and the weight that the consumer-friendly firm puts on consumer surplus in its
objective function is sufficiently high, the equilibrium social welfare is
larger in the quantity competition than in the price competition, which implies
that the result is reverse of that obtained in the standard duopoly with
substitutable goods composed of absolute profit maximizing firms.