search query: @author Zhao, J. / total: 5
reference: 3 / 5
| Author: | Zhao, J. |
| Title: | A characterization for the negative welfare effects of cost reduction in Cournot oligopoly |
| Journal: | International Journal of Industrial Organization
2001 : MAR, VOL. 19:3-4, p. 455-469 |
| Index terms: | COSTS COST REDUCTION OLIGOPOLY TECHNOLOGY WELFARE |
| Language: | eng |
| Abstract: | This paper characterizes the welfare effects of cost reductions in a Cournot model with linear costs. Under linear demand, a small reduction in a firm's marginal cost reduces welfare if and only if its market share is less than 1/(2n + 2), or equivalently, its marginal cost exceeds a critical level determined by the market. The author also characterizes the lower and upper bounds on a firm's marginal cost. A large cost reduction by the firm increases welfare if and only if its magnitude is at least twice the difference between the current marginal cost and its critical value. The paper also extends the results to non-linear demand, but the characterizations become less tractable. |
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