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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Ludwig, Sandra / Schmitz, Hendrik

Ed. by Barigozzi, Francesca / Brunner, Johann / Fleck, Robert / Jürges, Hendrik / Mastrobuoni, Giovanni / Mendola, Mariapia / Requate, Till / de Vries, Frans / Wenzel, Tobias


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Endogenous Equity Shares in Cournot Competition: Welfare Analysis and Policy

Kiriti Kanjilal
  • Department of Social Sciences and Humanities, Indraprastha Institute of Information Technology, New Delhi 110020, India
  • School of Economic Sciences, Washington State University, 323F Hulbert Hall, Pullman, WA 99164, USA
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/ Félix Muñoz-García
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  • School of Economic Sciences, Washington State University, 103H Hulbert Hall, Pullman, WA 99164, USA
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Published Online: 2019-10-30 | DOI: https://doi.org/10.1515/bejeap-2018-0085

Abstract

We consider a duopoly in which firms can strategically choose equity shares on their rival’s profits before competing in quantities. We identify equilibrium equity shares, and subsequently compare them against the optimal equity shares that maximize social welfare. Most previous studies assume that equity shares are exogenous, and those allowing for endogenous shares do not evaluate if equilibrium shares are socially excessive or insufficient. Our results also help us identify taxes on equity acquisition that induce firms to produce a socially optimal output without the need to directly tax output levels.

Keywords: cournot competition; endogenous equity shares; social optimum; equity share taxes

JEL Classification: L10; L2; D43; D6

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About the article

Published Online: 2019-10-30


Citation Information: The B.E. Journal of Economic Analysis & Policy, 20180085, ISSN (Online) 1935-1682, DOI: https://doi.org/10.1515/bejeap-2018-0085.

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