A BEJTE Topics article.

Abstract

We study a Cournot oligopoly with one low-cost (dominant) firm and one or more high-cost (subordinate) firms. If the equilibrium is interior, with all firms producing positive quantity, a reallocation of production relative to the equilibrium point, such that the dominant firm produces more, while the subordinate firms produce less, can increase consumers' surplus, as well as joint firm profit. We show that a price intervention (either a price floor or a fixed price) may help achieve such an improvement. The result hinges on the dominant firm having sufficiently low cost relative to the subordinate firms.

Submitted: November 29, 2006 · Accepted: April 3, 2007 · Published: June 8, 2007

Recommended Citation

Banerjee, Priyodorshi (2007) "Price Interventions in a Cournot Oligopoly with a Dominant Firm," The B.E. Journal of Theoretical Economics: Vol. 7 : Iss. 1 (Topics), Article 20.
DOI: 10.2202/1935-1704.1348
Available at: http://www.bepress.com/bejte/vol7/iss1/art20