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Licensed Unlicensed Requires Authentication Published by De Gruyter June 8, 2007

Price Interventions in a Cournot Oligopoly with a Dominant Firm

Priyodorshi Banerjee

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.

Published Online: 2007-6-8

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