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The B.E. Journal of Theoretical Economics

Editor-in-Chief: Schipper, Burkhard

Ed. by Fong, Yuk-fai / Peeters, Ronald / Puzzello , Daniela / Rivas, Javier / Wenzelburger, Jan

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Price Interventions in a Cournot Oligopoly with a Dominant Firm

Priyodorshi Banerjee1

1Planning Unit, Indian Statistical Institute,

Citation Information: The B.E. Journal of Theoretical Economics. Volume 7, Issue 1, ISSN (Online) 1935-1704, DOI: https://doi.org/10.2202/1935-1704.1348, June 2007

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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.

Keywords: dominant firm; regulation; asymmetric Cournot oligopoly; price interventions

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