Quantity Competition and Price Competition with a Duopoly in a Consumer-Friendly Firm: A Welfare Analysis

Yasuhiko Nakamura

College of Economics, Nihon University, Tokyo, Japan.

DOI: 10.4236/me.2013.411082                

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.

Keywords

Consumer-Friendly Firm; Degree of Product Differentiation; Extent of Importance of Consumer Surplus

Conflicts of Interest

The authors declare no conflicts of interest.

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