Price versus quantity competition with asymmetric costs in a vertically related duopoly

This paper compares Bertrand model and Cournot model in a vertically related duopoly market with asymmetric costs between downstream firms. We focus on the cost-inferior downstream firm. We show, from the perspective of the upstream firm, that it is beneficial for it to set a lower input price to the cost-inferior downstream firm and to set a higher input price to the cost-superior downstream firm. From the viewpoint of the cost-inferior downstream firm, we also show that the quantity in Cournot competition is larger than that in Bertrand competition and the payoff in Bertrand is larger than that in Cournot.