Welfare losses under cournot competitionReport as inadecuate




Welfare losses under cournot competition - Download this document for free, or read online. Document in PDF available to download.

Editor: Universidad Carlos III de Madrid. Departamento de Economía

Issued date: 2006-06

ISSN: 2340-5031

Serie-No.: UC3M Working papers. Economics2006-10

Rights: Atribución-NoComercial-SinDerivadas 3.0 España

Abstract:We find that in a market for a homogeneous good where firms are identical, compete in quantities andproduce with constant returns, the percentage of wel-fare losses (PWL) is small with as few as fivecompetitors for a class of demand functions which includeWe find that in a market for a homogeneous good where firms are identical, compete in quantities andproduce with constant returns, the percentage of wel-fare losses (PWL) is small with as few as fivecompetitors for a class of demand functions which includes linear and isoelastic cases. However withfixed costs and asymmetric firms PWL can be large. We provide exact formulae of PWL and robustconstructions of markets were PWL is close to one in these two cases. We show that the marketstructure that maximizes PWL is either monopoly or dominant firm, depending on demand. Finally weprove that PWL is minimized when all firms are identical, a clear indication that the assumption ofidentical firms biases the estimation of PWL downwards.+-





Author: Corchón, Luis C.

Source: http://e-archivo.uc3m.es


Teaser



Universidad Carlos III de Madrid Repositorio institucional e-Archivo http:--e-archivo.uc3m.es Departamento de Economía DE - Working Papers.
Economics.
WE 2006-06 Welfare losses under cournot competition Corchón, Luis C. http:--hdl.handle.net-10016-983 Descargado de e-Archivo, repositorio institucional de la Universidad Carlos III de Madrid Working Paper 06-39 Economics Series 10 June 2006 Departamento de Economía Universidad Carlos III de Madrid Calle Madrid, 126 28903 Getafe (Spain) Fax (34) 91 624 98 75 WELFARE LOSSES UNDER COURNOT COMPETITION* LUIS C.
CORCHÓN DÍAZ Abstract We find that in a market for a homogeneous good where firms are identical, compete in quantities and produce with constant returns, the percentage of wel-fare losses (PWL) is small with as few as five competitors for a class of demand functions which includes linear and isoelastic cases.
However with fixed costs and asymmetric firms PWL can be large.
We provide exact formulae of PWL and robust constructions of markets were PWL is close to one in these two cases.
We show that the market structure that maximizes PWL is either monopoly or dominant firm, depending on demand.
Finally we prove that PWL is minimized when all firms are identical, a clear indication that the assumption of identical firms biases the estimation of PWL downwards. * This paper was presented in the universities of Murcia, Pablo de Olavide (Sevilla) and CarlosIII. I am grateful to the audiences there and to C.
Beviá, N.
Fabra, M.
González-Maestre, C.
GozálezPimienta, J.
Jaumandreu, J.
López-Cuñat, C.
Litan, F.
Marcos, D.
Moreno, C.
Ponce and G. Zudenkova for helpful comments and to the Spanish Ministery of Education for financial support under grant BEC2002-02194. 1.
Introduction In his classical contribution Cournot (1837, Chapter 8) established that when the number of …rms in a market tends to in…nity, oligopolistic equilibrium tends to perfect competition.
As a corollary, Welfare Losses (WL), mea...





Related documents