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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Bibliographic InfoPaper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 14028.
Length: 28 pages
Date of creation: Mar 2014
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Competition policy; Cournot oligopoly; dominance solvability; efficiency; rationalizability; stability; airline industry.;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-04-11 (All new papers)
- NEP-COM-2014-04-11 (Industrial Competition)
- NEP-GER-2014-04-11 (German Papers)
- NEP-IND-2014-04-11 (Industrial Organization)
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