Cournot vs. Bertrand under relative performance delegation: Implications of positive and negative network externalities

•Revisits Cournot-Bertrand comparison under relative performance based delegation.•Strategies of opposite nature can lead to equivalent outcomes, but only by chance!•Positive network externalities result in standard Cournot–Bertrand rankings.•Negative network externalities lead to complete reversal of standard rankings.•If firms can choose between price and quantity contracts, multiple equilibria exist.

This paper demonstrates that relative-performance based strategic managerial delegation does not lead to the equivalence of Bertrand and Cournot equilibria in the presence of network externalities, regardless of the strength and type of network externalities — positive or negative. In the presence of positive network externalities, under relative-performance based delegation, Bertrand competition yields lower prices and profits, and higher quantities, consumers surplus and welfare than Cournot competition. On the contrary, these rankings are completely reversed in the presence of negative network externalities. It also discusses the endogenous choice of price or quantity contract under delegation in the presence of network externalities.