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arXiv · 2509.00960

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

Rabah Amir·Igor V. Evstigneev·Mikhail V. Zhitlukhin
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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.

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Rabah Amir, Igor V. Evstigneev, Mikhail V. Zhitlukhin. 2025-08-31. Contest vs. Competition in Cournot Duopoly: Schaffer's Paradox. https://arxiv.org/abs/2509.00960

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