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Endogenous Equity Shares in Cournot Competition: Welfare Analysis and Policy

Author

Listed:
  • Kanjilal Kiriti

    (Department of Social Sciences and Humanities, Indraprastha Institute of Information Technology, New Delhi110020, India)

  • Muñoz-García Félix

    (School of Economic Sciences, Washington State University, 103H Hulbert Hall, Pullman, WA 99164, USA)

Abstract

We consider a duopoly in which firms can strategically choose equity shares on their rival’s profits before competing in quantities. We identify equilibrium equity shares, and subsequently compare them against the optimal equity shares that maximize social welfare. Most previous studies assume that equity shares are exogenous, and those allowing for endogenous shares do not evaluate if equilibrium shares are socially excessive or insufficient. Our results also help us identify taxes on equity acquisition that induce firms to produce a socially optimal output without the need to directly tax output levels.

Suggested Citation

  • Kanjilal Kiriti & Muñoz-García Félix, 2020. "Endogenous Equity Shares in Cournot Competition: Welfare Analysis and Policy," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(1), pages 1-21, January.
    • Handle: RePEc:bpj:bejeap:v:20:y:2020:i:1:p:21:n:1
    DOI: 10.1515/bejeap-2018-0085
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    References listed on IDEAS

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    More about this item

    Keywords

    cournot competition; endogenous equity shares; social optimum; equity share taxes;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D6 - Microeconomics - - Welfare Economics

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