Asymmetry in Cournot Duopoly

We analyze the sources of persistent asymmetry between firms and between markets in a given industry. We focus on the case where some exogenous ex ante cost asymmetry can be magnified ex post in terms of cost (capabilities), market shares, prices and profit. Our model - a two-product Cournot duopoly - emphasizes the respective role of market conditions (demand elasticities) and organizational characteristics (organizational inertia). We find that both factors act as substitutes in creating asymmetries in cost; however, organizational factors seem to play a greater role than market ones in explaining asymmetries in market shares and profit. We also show that, from a benevolent social planner's viewpoint, the equilibrium asymmetry in cost that results in the duopoly is not enough : each firm should specialize further in the market where it has an ex ante cost advantage.
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