Rationalizability and Efficiency in an Asymmetric Cournot Oligopoly
AbstractWe study rationalizable solutions in a linear asymmetric Cournot oligopoly. We show that symmetry across firms favors multiplicity of rationalizable solutions: A merger (implying a greater asymmetry across firms) makes out-of-equilibrium behavior less likely and should dampen &lquo;coordination&rquo; volatility. The market structure maximizing consumers' surplus at a rationalizable solution is not always the competitive one: This may be a symmetric oligopoly with few firms. An empirical illustration to the airlines industry shows that a reallocation of 1% of market share from a small carrier to a larger one yields a 1.3% decrease in volatility, measured by the within carrier standard error of the number of passengers.
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Competition policy; Cournot oligopoly; dominance solvability; efficiency; rationalizability; stability; airline industry;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-04-18 (All new papers)
- NEP-COM-2014-04-18 (Industrial Competition)
- NEP-IND-2014-04-18 (Industrial Organization)
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