Price Interventions in a Cournot Oligopoly with a Dominant Firm

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Price Interventions in a Cournot Oligopoly with a Dominant Firm

Author Info

Priyodorshi Banerjee (Planning Unit, Indian Statistical Institute)

Abstract

We study a Cournot oligopoly with one low-cost (dominant) firm and one or more high-cost (subordinate) firms. If the equilibrium is interior, with all firms producing positive quantity, a reallocation of production relative to the equilibrium point, such that the dominant firm produces more, while the subordinate firms produce less, can increase consumers' surplus, as well as joint firm profit. We show that a price intervention (either a price floor or a fixed price) may help achieve such an improvement. The result hinges on the dominant firm having sufficiently low cost relative to the subordinate firms.

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Article provided by Berkeley Electronic Press in its journal Topics in Theoretical Economics.

Volume (Year): 7 (2007)
Issue (Month): 1 ()
Pages: 1348-1348
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Handle: RePEc:bep:thetop:v:7:y:2007:i:1:p:1348-1348

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Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection

References listed on IDEAS
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Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June. [Downloadable!] (restricted)
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Other versions:
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- Ted Bergstrom & Hal Varian, 1985. "Two Remarks on Cournot Equilibria," University of California at Santa Barbara, Economics Working Paper Series 1985C, Department of Economics, UC Santa Barbara. [Downloadable!]
Lahiri, Sajal & Ono, Yoshiyasu, 1988. "Helping Minor Firms Reduces Welfare," Economic Journal, Royal Economic Society, vol. 98(393), pages 1199-1202, December. [Downloadable!] (restricted)
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- Gaudet, G. & Salant, S., 1988. "Uniqueness Of Cournot Equilibrium: New Results From Old Methods," Papers 89-10, Michigan - Center for Research on Economic & Social Theory.
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