Contest vs. Competition in Cournot Duopoly: Schaffer's Paradox

Rabah Amir; Igor V Evstigneev; Mikhail V Zhitlukhin

doi:10.48550/arxiv.2509.00960

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Contest vs. Competition in Cournot Duopoly: Schaffer's Paradox

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Contest vs. Competition in Cournot Duopoly: Schaffer's Paradox

Rabah Amir, Igor V Evstigneev and Mikhail V Zhitlukhin

ArXiv.org

Cornell University

08/31/2025

DOI: 10.48550/arxiv.2509.00960

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Preprint (Author's original)This preprint has not been evaluated by subject experts through peer review. Preprints may undergo extensive changes and/or become peer-reviewed journal articles. Open Access

Abstract

The paper compares two types of industrial organization in the Cournot duopoly: (a) the classical one, where the market players maximize profits and the outcome of the game is a Cournot-Nash equilibrium; (b) a contest in which players strive to win a fixed prize/bonus employing unbeatable strategies. Passing from (a) to (b) leads to a perfect competition with zero profits of the players (Schaffer's paradox). Transition from (b) to (a) results in a substantial decline in the production output, which also seems paradoxical, as it is commonly accepted that competition increases efficiency. We examine these phenomena in two versions of the Cournot model: with a homogeneous good and with differentiated goods.

Quantitative Finance - Economics

Details

Title: Subtitle: Contest vs. Competition in Cournot Duopoly: Schaffer's Paradox
Creators: Rabah Amir
Igor V Evstigneev
Mikhail V Zhitlukhin
Resource Type: Preprint
Publication Details: ArXiv.org
DOI: 10.48550/arxiv.2509.00960
ISSN: 2331-8422
Publisher: Cornell University; Ithaca, New York
Language: English
Date posted: 08/31/2025
Academic Unit: Economics
Record Identifier: 9984958291002771

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