Cournot vs. Bertrand under centralised bargaining

- The paper reinvestigates Cournot and Bertrand profit differential in a vertically related market.
- The results are different to the ones obtained in other vertical pricing models.
- The downstream profits are higher under Cournot than Bertrand if the goods are substitutes.
- The profit ranking reverses when the goods are complements.

We revisit the debate on Cournot and Bertrand profit comparison in a vertically related upstream market for inputs. We find that when an input pricing contract is determined through centralised bargaining, the final goods producers earn higher (lower) profit under quantity competition than under price competition if the goods are substitutes (complements). Our results are strikingly different to the ones obtained from a similar comparison in other vertical pricing models.