We provide a game-theoretic alternative of the kinked demand curve explanation of rigid prices. We analyze a duopoly where firms choose quantities and objectives. We identify cases under which firms choose to maximize their revenue. Under these cases, prices are insensitive to unit costs.

This paper demonstrates that the standard conclusions regarding the comparison of Cournot and Bertrand competition are reversed in a vertically related market with upstream monopoly and trading via two-part tariffs. In such a market, downstream Cournot competition yields higher output, lower...