This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Insisting on a Non-Negative Price: Oligopoly, Uncertainty, Welfare, and Multiple Equilibria

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Johan Lagerlöf

Additional information is available for the following registered author(s):

Abstract

I study Cournot competition under incomplete information about demand while assuming that market price must be non-negative for all demand realizations. Although this assumption is very natural, it has only rarely been made in the earlier literature. Yet it has important economic consequences: (1) multiple (symmetric, pure strategy) equilibria can exist, despite the fact that demand and cost are linear; and (2) expected total surplus can be larger when the firms do not know demand than when they do, a result which has important implications for the social desirability of information sharing. The arguments of the paper are relevant also for price competition and for uncertainty about, e.g., cost or the number of firms, and these issues are discussed.

ZUSAMMENFASSUNG - (Bestehen auf einen nichtnegativen Preis: Oligopol, Ungewißheit, Wohlfahrt und multiple Gleichgewichte)
In diesem Beitrag wird Cournot-Wettbewerb bei unvollständiger Information über die Nachfrage untersucht und unterstellt, daß der Marktpreis für alle Realisierungen der Nachfrage nichtnegativ ist. Obgleich diese Annahme sehr selbstverständlich ist, ist sie nur selten in der früheren Literatur verwendet worden. Dennoch hat sie wichtige ökonomische Konsequenzen: (1) können multiple Gleichgewichte existieren (symmetrisch, bei reinen Strategien), obwohl Nachfrage und Kosten linear sind; und (2) kann erwarteter Gesamtüberschuß größer sein, wenn die Unternehmen die Nachfrage nicht kennen als im Falle sie ihnen nicht bekannt ist. Dieses Ergebnis hat wichtige Implikationen für die soziale Erwünschtheit der gemeinsamen Nutung von Information ("Information sharing"). Die Argumente des Beitrags sind auch für Preiskonkurrenz und für Ungewißheit beispielsweise hinsichtlich der Kosten oder der Zahl von Unternehmen relevant. Sie werden abschließend besprochen.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://skylla.wz-berlin.de/pdf/2003/ii03-04.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number SP II 2003-04.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 26 pages
Date of creation: Jun 2003
Date of revision:
Handle: RePEc:wzb:wzebiv:spii2003-04

Contact details of provider:
Postal: Reichpietschufer 50, 10785 Berlin, Germany
Phone: (++49)(30) 25491-441
Fax: (++49)(30) 25491-442
Web page: http://www.wzb.eu/mp/wiw/default.en.htm
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Jennifer Rontganger).

Related research
Keywords: Non-negativity constraint; Multiple equilibria; Value of information; Information sharing; Trade associations; Antitrust policy;

Other versions of this item:

Find related papers by JEL classification:
D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Malueg, David A & Tsutsui, Shunichi O, 1998. "Oligopoly Information Exchange When Non-negative Price and Output Constraints May Bind," Australian Economic Papers, Blackwell Publishing, vol. 37(4), pages 363-71, December. [Downloadable!] (restricted)
  2. Gal-Or, Esther, 1986. "Information Transmission-Cournot and Bertrand Equilibria," Review of Economic Studies, Blackwell Publishing, vol. 53(1), pages 85-92, January. [Downloadable!] (restricted)
  3. Raith, Michael, 1996. "A General Model of Information Sharing in Oligopoly," Journal of Economic Theory, Elsevier, vol. 71(1), pages 260-288, October. [Downloadable!] (restricted)
    Other versions:
  4. William Novshek & Hugo Sonnenschein, 1982. "Fulfilled Expectations Cournot Duopoly with Information Acquisition and Release," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 214-218, Spring. [Downloadable!] (restricted)
  5. Rabah Amir & Val E. Lambson, 1998. "On the Effects of Entry in Cournot Markets," CIE Discussion Papers 1998-06, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    Other versions:
  6. Shapiro, Carl, 1986. "Exchange of Cost Information in Oligopoly," Review of Economic Studies, Blackwell Publishing, vol. 53(3), pages 433-46, July. [Downloadable!] (restricted)
  7. Xavier Vives, 1990. "Trade Association Disclosure Rules, Incentives to Share Information, and Welfare," RAND Journal of Economics, The RAND Corporation, vol. 21(3), pages 409-430, Autumn. [Downloadable!] (restricted)
  8. Weitzman, Martin L, 1974. "Prices vs. Quantities," Review of Economic Studies, Blackwell Publishing, vol. 41(4), pages 477-91, October. [Downloadable!] (restricted)
    Other versions:
  9. Richard N. Clarke, 1983. "Collusion and the Incentives for Information Sharing," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 383-394, Autumn. [Downloadable!] (restricted)
  10. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, January.
  11. Li, Lode., 1985. "Cournot Oligopoly with Information Sharing," Working Papers 561, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  12. Basar, Tamer & Ho, Yu-Chi, 1974. "Informational properties of the Nash solutions of two stochastic nonzero-sum games," Journal of Economic Theory, Elsevier, vol. 7(4), pages 370-387, April. [Downloadable!] (restricted)
  13. Novshek, William, 1985. "On the Existence of Cournot Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 52(1), pages 85-98, January. [Downloadable!] (restricted)
    Other versions:
  14. Vives, Xavier, 1984. "Duopoly information equilibrium: Cournot and bertrand," Journal of Economic Theory, Elsevier, vol. 34(1), pages 71-94, October. [Downloadable!] (restricted)
  15. Lode Li, 1985. "Cournot Oligopoly with Information Sharing," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 521-536, Winter. [Downloadable!] (restricted)
  16. Gal-Or, Esther, 1985. "Information Sharing in Oligopoly," Econometrica, Econometric Society, vol. 53(2), pages 329-43, March. [Downloadable!] (restricted)
  17. Amir, Rabah, 1996. "Cournot Oligopoly and the Theory of Supermodular Games," Games and Economic Behavior, Elsevier, vol. 15(2), pages 132-148, August. [Downloadable!] (restricted)
    Other versions:
  18. Kai-Uwe Kühn, 2001. "Fighting collusion by regulating communication between firms," Economic Policy, CEPR, CES, MSH, vol. 16(32), pages 167-204, 04. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Johan Lagerlöf, 2006. "Equilibrium Uniqueness in a Cournot Model with Demand Uncertainty," Topics in Theoretical Economics, Berkeley Electronic Press, vol. 6(1), pages 1333-1333. [Downloadable!] (restricted)
Statistics
Access and download statistics

Did you know? LogEc provides statistical analysis about downloads from this service (and others).

This page was last updated on 2009-10-28.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.