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Effects of Cost Changes on Oligopolists' Profits

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  • Kimmel, Sheldon
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    Abstract

    This paper considers cost changes affecting all firms in a constant-returns-to-scale Cournot oligopoly. Cost increases may paradoxically benefit some or even all firms. Whether a firm benefits or is harmed depends only on whether its market share exceeds a threshold level, on whether industry costs increase or decrease, on the number of firms, and on the elasticity of the demand curve's slope (or equivalently, the fraction of cost changes that are passed on). Conditions where industry structure alone determines the effect of cost changes on firms' profits and conditions where cost increases necessarily harm some firms are developed. Copyright 1992 by Blackwell Publishing Ltd.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

    Volume (Year): 40 (1992)
    Issue (Month): 4 (December)
    Pages: 441-49

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    Handle: RePEc:bla:jindec:v:40:y:1992:i:4:p:441-49

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821

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    Cited by:
    1. Neary, J Peter, 2002. "Foreign Direct Investment and the Single Market," CEPR Discussion Papers 3419, C.E.P.R. Discussion Papers.
    2. Hepburn, Cameron J. & Quah, John K.-H. & Ritz, Robert A., 2013. "Emissions trading with profit-neutral permit allocations," Journal of Public Economics, Elsevier, vol. 98(C), pages 85-99.
    3. Cameron Hepburn & John Quah & Robert Ritz, 2006. "Emissions Trading and Profit-Neutral Grandfathering," Economics Series Working Papers 295, University of Oxford, Department of Economics.
    4. Rabah AMIR & Isabelle MARET & Michael TROEGE, 2004. "On Taxation Pass-Through for a Monopoly Firm," Annales d'Economie et de Statistique, ENSAE, issue 75-76, pages 155-172.
    5. AMIR, Rabah & WOODERS, John, 1997. "One-way spillovers, endogenous innovator/imitator roles and research joint ventures," CORE Discussion Papers 1997027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. E. Glen Weyl & Michal Fabinger, 2013. "Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 528 - 583.
    7. Hamilton, Stephen F., 1999. "Demand shifts and market structure in free-entry oligopoly equilibria," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 259-275, February.
    8. Jurgan, Jens, 2009. "Conjectural cost variations in a differentiated good oligopoly," W.E.P. - Würzburg Economic Papers 80, University of Würzburg, Chair for Monetary Policy and International Economics.
    9. Fevrier, Philippe & Linnemer, Laurent, 2004. "Idiosyncratic shocks in an asymmetric Cournot oligopoly," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 835-848, June.
    10. Robert A. Ritz, 2008. "Cost pass-through under delegation," Economics Series Working Papers 404, University of Oxford, Department of Economics.
    11. Jingang Zhao, 1999. "A Characterization of the Negative Welfare Effects of Cost Reduction in Cournot Oligopoly," Working Papers 99-06, Ohio State University, Department of Economics.
    12. Hamilton, Stephen F. & Sunding, David L., 2000. "Product liability, entry incentives and market structure," International Review of Law and Economics, Elsevier, vol. 20(2), pages 269-283, June.
    13. Dermot Leahy & Catia Montagna, 1998. "Targeted Strategic Trade Policy with Domestic Cost Heterogeneity," Dundee Discussion Papers in Economics 100, Economic Studies, University of Dundee.

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