Tougher price competition or lower concentration: a trade-off for anti-trust authorities?

Abstract

In a horizontal product differentiation model, we show conditions under which Cournot competition (which implies some form of price coordination) allows a larger number of firms to operate in the industry than Bertrand competition. In turn, total welfare is higher under Cournot than under Bertrand. This suggests that if antitrust authorities try to impose "too much" price competition in an industry, an increase in concentration may follow which is not necessarily beneficial to the collectivity.