An Asymmetric Oligopolist can Improve Welfare by Raising Price

An Asymmetric Oligopolist can Improve Welfare by Raising Price We demonstrate that, in Bertrand/Cournot equilibrium, a firm with a relatively small market share may improve social welfare by raising its price. This could be because the price increase can mitigate an output-structure distortion: if there are two goods which have the same marginal cost, then, under some conditions, the good in higher demand (the efficient good) will have a higher markup rate than the other good (the inefficient good). This suggests that the output structure is distorted in favor of the inefficient good, since the higher markup rate of the efficient good should lead to a considerable increase in demand for the inefficient good. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

An Asymmetric Oligopolist can Improve Welfare by Raising Price

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Publisher
Springer US
Copyright
Copyright © 2009 by Springer Science+Business Media, LLC.
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-009-9219-y
Publisher site
See Article on Publisher Site

Abstract

We demonstrate that, in Bertrand/Cournot equilibrium, a firm with a relatively small market share may improve social welfare by raising its price. This could be because the price increase can mitigate an output-structure distortion: if there are two goods which have the same marginal cost, then, under some conditions, the good in higher demand (the efficient good) will have a higher markup rate than the other good (the inefficient good). This suggests that the output structure is distorted in favor of the inefficient good, since the higher markup rate of the efficient good should lead to a considerable increase in demand for the inefficient good.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Oct 10, 2009

References

  • Product diversity in asymmetric oligopoly: Is the quality of consumer goods too low?
    Anderson, S. P.; Palma, A.

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