Efficiency loss in a Cournot oligopoly with convex market demand
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Publication:406255
DOI10.1016/J.JMATECO.2014.06.001zbMATH Open1305.91182arXiv1203.6675OpenAlexW2942107507MaRDI QIDQ406255FDOQ406255
Authors: John N. Tsitsiklis, Yunjian Xu 
Publication date: 8 September 2014
Published in: Journal of Mathematical Economics (Search for Journal in Brave)
Abstract: We consider a Cournot oligopoly model where multiple suppliers (oligopolists) compete by choosing quantities. We compare the social welfare achieved at a Cournot equilibrium to the maximum possible, for the case where the inverse market demand function is convex. We establish a lower bound on the efficiency of Cournot equilibria in terms of a scalar parameter derived from the inverse demand function, namely, the ratio of the slope of the inverse demand function at the Cournot equilibrium to the average slope of the inverse demand function between the Cournot equilibrium and a social optimum. Also, for the case of a single, monopolistic, profit maximizing supplier, or of multiple suppliers who collude to maximize their total profit, we establish a similar but tighter lower bound on the efficiency of the resulting output. Our results provide nontrivial quantitative bounds on the loss of social welfare for several convex inverse demand functions that appear in the economics literature.
Full work available at URL: https://arxiv.org/abs/1203.6675
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Consumer behavior, demand theory (91B42) Other game-theoretic models (91A40) Special types of economic markets (including Cournot, Bertrand) (91B54)
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Cited In (13)
- Equilibrium and inefficiency in multi-product Cournot games
- Welfare Losses Due to Imperfect Competition: Asymptotic Results for Cournot Nash Equilibria with and without Free Entry
- Inducing efficiency in oligopolistic markets with increasing returns to scale
- Efficiency loss in a Cournot oligopoly with convex market demand
- Profit loss in Cournot oligopolies
- How bad is the merger paradox?
- How bad is the merger paradox?
- Approximate Efficiency of Cournot Equilibria in Large Markets
- Generalized quantity competition for multiple products and loss of efficiency
- A lower-bound on monopoly profit for log-concave demand
- Differentiated oligopolistic markets with concave cost functions via Ky Fan inequalities
- Surplus sharing in Cournot oligopoly
- A mathematical model of demand-supply dynamics with collectability and saturation factors
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