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Rationalizability and efficiency in an asymmetric Cournot oligopoly

Listed author(s):
  • Desgranges, Gabriel
  • Gauthier, Stéphane

This paper studies rationalizability in a linear asymmetric Cournot oligopoly with a unique Nash equilibrium. It shows that mergers favor uniqueness of the rationalizable outcome. When one requires uniqueness of the rationalizable outcome maximization of consumers' surplus may involve a symmetric oligopoly with few firms. We interpret uniqueness of the rationalizable outcome as favoring a dampening of strategic ‘coordination’ uncertainty. An illustration to the merger between Delta Air Lines and Northwest shows that a reallocation of 1% of market share from a small carrier to a larger one has implied a lower production volatility over time, yielding a 1.5% decrease in the coefficient of variation of number of passengers.

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File URL: http://www.sciencedirect.com/science/article/pii/S0167718715001174
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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 44 (2016)
Issue (Month): C ()
Pages: 163-176

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Handle: RePEc:eee:indorg:v:44:y:2016:i:c:p:163-176
DOI: 10.1016/j.ijindorg.2015.10.011
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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