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Efficiency and surplus bounds in Cournot competition

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  • Simon P. Anderson

    ()

  • Régis Renault

    ()

Abstract

We derive bounds on the ratios of deadweight loss and consumer surplus to producer surplus under Cournot competition. To do so, we introduce a parameterization of the degree of curvature of market demand using the parallel concepts of ?-concavity and ?-convexity. The ?more concave? is demand, the larger the share of producer surplus in overall surplus, the smaller is consumer surplus relative to producer surplus, and the lower the ratio of deadweight loss to producer surplus. Deadweight loss over total potential surplus is at Þrst increasing with demand concavity, then eventually decreasing. The analysis is extended to asymmetric Þrm costs.

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File URL: http://www.virginia.edu/economics/RePEc/vir/virpap/papers/virpap360.pdf
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Bibliographic Info

Paper provided by University of Virginia, Department of Economics in its series Virginia Economics Online Papers with number 360.

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Length: 27 pages
Date of creation: Apr 2001
Date of revision:
Handle: RePEc:vir:virpap:360

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Web page: http://www.virginia.edu/economics/home.html

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Keywords: Cournot equilibrium; social surplus analysis; deadweight loss; market performance.;

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  1. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, American Economic Association, vol. 67(3), pages 297-308, June.
  2. Novshek, William, 1985. "On the Existence of Cournot Equilibrium," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 52(1), pages 85-98, January.
  3. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
  4. Timothy J. Besley & Harvey S. Rosen, 1998. "Sales Taxes and Prices: An Empirical Analysis," NBER Working Papers 6667, National Bureau of Economic Research, Inc.
  5. Anderson, Simon & de Palma, Andre & Kreider, Brent, 2001. "Tax Incidence in Differentiated Product Oligopoly," Staff General Research Papers, Iowa State University, Department of Economics 5202, Iowa State University, Department of Economics.
  6. Caplin, A. & Nalebuff, B., 1989. "Aggregation And Social Choice: A Mean Voter Theorem," Discussion Papers, Columbia University, Department of Economics 1989_31, Columbia University, Department of Economics.
  7. Poterba, James M., 1996. "Retail Price Reactions to Changes in State and Local Sales Taxes," National Tax Journal, National Tax Association, National Tax Association, vol. 49(2), pages 165-76, June.
  8. Caplin, A. & Nalebuff, B., 1989. "Aggregation And Imperfect Competition: On The Existence Of Equilibrium," Discussion Papers, Columbia University, Department of Economics 1989_30, Columbia University, Department of Economics.
  9. Cowling, Keith & Mueller, Dennis C, 1978. "The Social Costs of Monopoly Power," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 88(352), pages 727-48, December.
  10. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 43(2), pages 217-35, June.
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Citations

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Cited by:
  1. Robert Ritz, 2013. "On welfare losses due to imperfect competition," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1334, Faculty of Economics, University of Cambridge.
  2. Fevrier, Philippe & Linnemer, Laurent, 2004. "Idiosyncratic shocks in an asymmetric Cournot oligopoly," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 22(6), pages 835-848, June.
  3. Tomohiro Ara & Arghya Ghosh, 2012. "Bargaining, Tariffs and Vertical Specialization," Discussion Papers, School of Economics, The University of New South Wales 2012-14, School of Economics, The University of New South Wales.
  4. Tatiana Damjanovic & David Ulph, 2007. "Tax Progressivity, Income Distribution and Tax Non-Compliance," Discussion Paper Series, Department of Economics, Department of Economics, University of St. Andrews 200712, Department of Economics, University of St. Andrews.
  5. Ritz, R.A., 2012. "On welfare losses due to imperfect competition," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1234, Faculty of Economics, University of Cambridge.
  6. Mares, Vlad & Swinkels, Jeroen M., 2011. "Near-optimality of second price mechanisms in a class of asymmetric auctions," Games and Economic Behavior, Elsevier, Elsevier, vol. 72(1), pages 218-241, May.
  7. Andrew F. Newman & Patrick Legros, 2011. "Incomplete Contracts and Industrial Organization: A Survey," Boston University - Department of Economics - Working Papers Series, Boston University - Department of Economics WP2011-036, Boston University - Department of Economics.
  8. Anderson, Simon P & Renault, Régis, 2005. "Advertising Content," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5064, C.E.P.R. Discussion Papers.
  9. Corchón, Luis C., 2008. "Welfare losses under Cournot competition," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 26(5), pages 1120-1131, September.
  10. 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, University of Chicago Press, vol. 121(3), pages 528 - 583.
  11. Corchón, Luis C. & Zudenkova, Galina, 2009. "Computing welfare losses from data under imperfect competition with heterogeneous goods," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 27(6), pages 646-654, November.
  12. Arghya Ghosh & Alberto Motta, 2011. "Outsourcing with Heterogeneous Firms," Discussion Papers, School of Economics, The University of New South Wales 2011-09, School of Economics, The University of New South Wales.
  13. Luis Corchón & Félix Marcos, 2010. "Price regulation in oligopoly," Economics Working Papers, Universidad Carlos III, Departamento de Economía we100101, Universidad Carlos III, Departamento de Economía.

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