The Retailers’ Choices of Profit Strategies in a Cournot Duopoly: Relative Profit and Pure Profit

Abstract

To investigate the influence of the relative performance on retailers’ choices of profit strategies, a Cournot competition model composed of two private retailers is proposed, in which retailers are facing the problem of choosing a strategy from pure profit and relative profit. The study shows that, 1) when its competitor pursues relative profit, the retailer will adopt pure profit strategy if the degree of relative performance of its competitor is high enough. Otherwise, the retailer will adopt the relative profit strategy. 2) The more relative profit-maximizing retailers there are, the more intense market competition will be, the lower market price will decrease. 3) Under a certain degree of relative performance, the strategy profiles (relative profit, relative profit), (relative profit, pure profit) and (pure profit, relative profit) are all likely to be Nash equilibrium, except the strategy profile (pure profit, pure profit).