Efficiency loss in a Cournot oligopoly with convex market demand

DOI10.1016/J.JMATECO.2014.06.001MaRDI QIDQ406255zbMATH OpenOpenAlexFDO

Authors John N. Tsitsiklis, Yunjian Xu

Publication date 8 September 2014

Published in Journal of Mathematical Economics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1203.6675, https://hdl.handle.net/1721.1/128900

zbMATH Keywords

game theoryCournot oligopolyNash equilibriumprice of anarchy

Mathematics Subject Classification ID

Consumer behavior, demand theory (91B42) Other game-theoretic models (91A40) Special types of economic markets (including Cournot, Bertrand) (91B54)

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.

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Cites work

• scientific article; zbMATH DE number 3599745 (Why is no real title available?)
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• Generalized quantity competition for multiple products and loss of efficiency
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Cited in

(13)

• Differentiated oligopolistic markets with concave cost functions via Ky Fan inequalities
• How bad is the merger paradox?
• How bad is the merger paradox?
• Surplus sharing in Cournot oligopoly
• Welfare Losses Due to Imperfect Competition: Asymptotic Results for Cournot Nash Equilibria with and without Free Entry
• A mathematical model of demand-supply dynamics with collectability and saturation factors
• Equilibrium and inefficiency in multi-product Cournot games
• Inducing efficiency in oligopolistic markets with increasing returns to scale
• Approximate Efficiency of Cournot Equilibria in Large Markets
• Efficiency loss in a Cournot oligopoly with convex market demand
• A lower-bound on monopoly profit for log-concave demand
• Generalized quantity competition for multiple products and loss of efficiency
• Profit loss in Cournot oligopolies

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