Inferior factor in Cournot oligopoly revisited

We reconsider the recent work by Okuguchi (J Econ 101:125–131, 2010) on (possibly asymmetric) Cournotian firms with two production factors, one being inferior for each firm. It is shown there that an increase in the price of the inferior factor does raise the equilibrium industry output. In addition of providing a simpler and more rigorous proof of that result, we generalize it to the case of technologies with $s\ge 2$ factors and also allow some firms not to use the inferior one.     

Taxation within Cournot oligopoly

When the production of output causes pollution, we often consider taxation as a means to reduce it. This paper examines various forms of taxation to control pollution within Cournot oligopoly. It shows that two commonly used forms can actually increase pollution. In contrast, both of these forms unambiguously reduce pollution within the competitive model. The paper provides conditions, in terms of demand and technology, that make taxation effective in the Cournot oligopoly case. Another implication of the analysis is that, outside the price-taking framework, asymmetry of cost functions is particularly important and deserves careful attention when we examine the effect of taxation.     

Cournot competition in a differentiated oligopoly

This paper studies product-quantity equilibria in an oligopoly. Products are interpreted as “qualities” and each firm chooses a quality-quantity pair, simultaneously. It is well known that a pure-strategy equilibrium in product-price pairs does not exist in this model, but a pure-strategy equilibrium in product-quantity pairs exists. Furthermore, in an example widely studied in the literature, the equilibrium has nice asymptotic properties.     

Contributions to Cournot oligopoly theory

This work contributes to a number of questions concerning oligopoly models. In particular, uniqueness of the Cournot equilibrium point is demonstrated under the assumption that either the unit price function is differentiable and the derivative is strictly negative or the cost functions are strictly convex. Also, under the assumption of either strictly decreasing unit price function or strictly convex cost functions, it is shown that (a) the total production level at equilibrium increases with entry of additional players, (b) that cooperation between some of the players necessarily entails profit for the others, and (c) cooperative grouping causes decrease in production levels.     

Second-best trade policies in Cournot oligopoly

In this paper we study the optimal import policy in an oligopolistic market with a given number of quantity-setting firms. In the absence of fixed costs, we show that if the policy instrument is an import quota, the optimal policy is either free trade or autarky, while if the instrument is a tariff the optimal policy is neither free trade nor autarky. In the case of fixed costs, we show that contrary to the traditional protectionist argument, a restrictive import policy might increase domestic welfare by increasing domestic consumers' surplus, instead of increasing domestic profits.     

Price discrimination in Cournot–Nash oligopoly

The standard Cournot–Nash oligopoly model is extended to encompass price discrimination, where firms charge more than one price for the same product based on willingness to pay. In the linear, symmetric case, the average price is not dependent on the extent of price discrimination.     

Labor-managed Cournot oligopoly and industry output

It is known that in imperfectly competitive situations a labor-managed firm produces less output than an equivalent entrepreneurially controlled firm. However, it has also been suggested that there would be more labor-managed firms than entrepreneurial firms, ceteris paribus. Analysis shows that, in the context of a Cournot model of oligopoly with free entry, the latter contention is false, so the labor-managed industry would not be “more competitive.” Some extensions and comments on this result are also offered.     

Labor-managed Cournot oligopoly with product differentiation

Two dynamic systems of labor adjustments are formulated for labor-managed firms in Cournot oligopoly with product differentiation. The global stability conditions are derived for two types of Cournot equilibria corresponding to the stationary points of the two dynamic systems.The author is grateful to two referees of this Journal for helpful comments, which have led to a radical revision of an earlier version.     

Behavioural heterogeneity and Cournot oligopoly equilibrium

It is not uncommon to see studies of imperfect competition or of industrial organization rest upon questionable foundations such as the hypothesis that inverse market demand is, whenever it is positive, concave or even linear. Assumptions of this sort are not robust (i.e. “additive”) in the sense that they are not usually preserved through aggregation of different sectors that would satisfy them individually. The present paper investigates an alternative specification that is based upon the plausible existence of significant heterogeneities among demanders. It is demonstrated that specific forms of demand heterogeneity tend to stabilize market expenditures. In a partial equilibrium context, sufficient demand heterogeneity is shown to imply existence and unicity of a Cournot oligopoly equilibrium.     

Profit sharing and strike activity in Cournot oligopoly

Within an incomplete-information framework, we develop a model of wage determination in a unionized Cournot oligopoly. The assumption of incomplete information allows the possibility of strikes or lockouts, which waste industry potential resources, at equilibrium. Facing such deadweight loss, the government or the social planner may decide to adopt a policy, such as a profit-sharing scheme. Under two different bargaining structures (firm level vs. industry level), we investigate the effects of adopting profit sharing on the wage outcome and the strike activity. If the base-wage bargaining takes place at the industry level, then the introduction of a profit-sharing scheme increases the strike activity. But if the base-wage bargaining takes place at the firm level and the number of firms in the industry is greater than two, then the introduction of a profit-sharing scheme reduces the strike activity.     

New technology adoption in a Cournot oligopoly with spillovers

In a two-stage Cournot oligopoly where a subset of firms first make a choice between two alternative production technologies independently and then all firms compete in quantity, the effect of information spillovers is analyzed when the outcome of R&D is uncertain. It is shown that the range of parameter values that support heterogeneous firms in equilibrium will diminish as information spillovers become larger. Particularly, when the spillover effect is so strong that the investment by one firm is beneficial to its R&D active rivals, all active firms will choose the same technology. A similar result can be derived from a socially desirable point of view except that the cut-off magnitude of spillovers is different. By introducing a positive success probability to characterize the uncertainty of the R&D outcome, it is found that when information spillovers are not too small, there will be underinvestment in equilibrium relative to the social optimum.     

Symmetric Cournot oligopoly and economic welfare: a synthesis

Summary Recently, Mankiw-Whinston (1986) and Suzumura-Kiyono (1987) have shown that socially excessive firm entry occurs in unregulated oligopoly. This paper extends this excess entry results by looking into strategic aspects of costreducing R&D investment that creates incentives towards socially excessive investments. In the first stage, firms decide whether or not to enter the market. In the second stage, firms make a commitment to cost-reducing R&D investment. In the third stage, firms compete in output quantities. It is shown that the excess entry holds even in the presence of strategic commitments.This is the synthesized version of the two earlier papers, Okuno-Fujiwara and Suzumura (1988) and Suzumura (1991). We are grateful to Professors J. Brander, D. Cass, M. Majumdar, A. Postlewaite, J. Richmond, A. Sandmo, B. Spencer and J. Vickers for their helpful comments and discussions on earlier drafts. Needless to say, they should not be held responsible for any remaining defects. Financial supports from the Japan Center for Economic Research, Tokyo Center for Economic Research, the Japanese Ministry of Education, and the Institute for Monetary and Economic Research, the Bank of Japan are gratefully acknowledged.     

A theory of dynamic oligopoly,III: Cournot competition

We study the Markov perfect equilibrium (MPE) of an alternating move, infinite horizon duopoly model where the strategic variable is quantity. We exhibit a pair of difference-differential equations that, when they exist, differentiable MPE strategies satisfy. For quadratic payoff functions, we solve these equations in closed form and demonstrate that the MPE corresponding to the solution is the limit of the finite horizon equilibrium as the horizon tends to infinity. We conclude with a discussion of adjustment costs and endogenization of the timing.     

Bertrand versus Cournot competition in a downstream mixed oligopoly with foreign ownership

Focusing on foreign ownership in the private firm, we examine the Cournot-Bertrand comparison in a mixed oligopolistic market with vertical market structure. We have found that if public and private firms were charged with uniform price for their inputs, then Cournot-Bertrand ranking in market outcomes confirms those obtained by Ghosh and Mitra (2010). This implies that under uniform pricing in the upstream sector, the vertical market structure does not have substantial influences on Cournot-Bertrand ranking. However, if discriminatory pricing is adopted, firm's profits, output, and social welfare are often reversed to those obtained from uniform pricing in the upstream sector. Given the closeness of products, if the share of foreign ownership is sufficiently low, social welfare in Cournot competition can exceed that of Bertrand competition, contrasting with the standard welfare ranking that Bertrand welfare is strictly higher than Cournot. This implies that Cournot competition can be more socially desirable than Bertrand in mixed oligopoly with vertical market structure if discriminatory pricing scheme is adopted by foreign upstream monopolists.     

Comparison between specific taxation and volume quotas in a free entry Cournot oligopoly

We revisit the classic discussion of the comparison between tax and quota, but in a free-entry Cournot oligopoly. We investigate a quantity ceiling regulation as a quota policy. We find that tariff-quota equivalence holds if the firms are symmetric and the number of firms is given exogenously. However the equivalence does not hold and taxes dominate quotas in the free entry market because quota can increases the number of entering firms and increases the loss caused by excessive entries.     

Beyond the need to boast: Cost concealment incentives and exit in Cournot oligopoly

This paper studies the incentives for production cost disclosure in an asymmetric Cournot oligopoly. Whereas the efficient firm (consumers) prefers information sharing (concealment) when the firms choose accommodating strategies in the product market, the firm (consumers) may prefer information concealment (sharing) when it can exclude its competitors from the market. Hence, the rankings of expected profit and consumer surplus can be reversed if exit of the inefficient firms is possible. Although the efficient firm has stronger incentives to share information when it shares strategically, there remain cases in which the firm conceals information in equilibrium to induce exit.     

Price dispersion in oligopoly

In the world of perfect markets consumers are assumed to respond instantly to every small price change. However, in the real world it is not clear that any small price change will have a great impact on consumers' decisions and that, regardless of their habit, they will shift from one brand to the other. The purpose of this paper is to examine oligopolistic price competition under the assumption that consumers are non-responsive to small price differences. The paper proves the existence of equilibrium in which firms do not necessarily charge the same price; however some of the firms charge their monopolistic price and others charge prices close to that price.     

Cooperative oligopoly equilibrium

Oligopoly cooperation is investigated in an industry with N firms: each firm selects its own output. We show that such oligopoly problems have the same structure as problems of allocating public goods since each firm views its own output as a private good while viewing the outputs of others as public bads. This leads to ‘cooperative oligopoly equilibria’ which are the Lindahl equilibria of the oligopoly model. Agreements are modeled by the selection of a mechanism or ‘game form’ which obeys certain axioms. Under the postulated axioms we show the equivalence of agreed allocations with the set of oligopoly equilibria.It is argued that the principle of ‘Lindahl agreements’ may have wider applications.