Contest vs. Competition in Cournot Duopoly: Schaffer's Paradox
General Economics
2025-09-03 v1 Economics
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.
Cite
@article{arxiv.2509.00960,
title = {Contest vs. Competition in Cournot Duopoly: Schaffer's Paradox},
author = {Rabah Amir and Igor V. Evstigneev and Mikhail V. Zhitlukhin},
journal= {arXiv preprint arXiv:2509.00960},
year = {2025}
}