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Output Diffusion of the Monopolist Over Time and Space

Author

Listed:
  • Hyungho Youn

    (Seoul Institute)

  • Patrick De Leenheer

    (Oregon State University)

  • Victor Tremblay

    (Oregon State University)

Abstract

In this paper, we develop an output diffusion model in which a monopoly firm faces a cost of adjusting output over time and across geographic regions. First, we investigate a dynamic monopoly model and a simple spatial model with only regional adjustment costs. Then, we explore how the firm maximizes profits over time and space, a calculus of variation problem. The Euler equation yields a partial differential equation which forms our output diffusion model. It extends the traditional inter-temporal output path into output diffusion over time and space. As long as regional adjustment costs exist, steady-state output in the diffusion model is less than the static monopoly output level. This model suggests that a policy designed to lower regional adjustment costs can increase supply in all geographic regions.

Suggested Citation

  • Hyungho Youn & Patrick De Leenheer & Victor Tremblay, 2016. "Output Diffusion of the Monopolist Over Time and Space," Journal of Optimization Theory and Applications, Springer, vol. 169(1), pages 290-298, April.
    • Handle: RePEc:spr:joptap:v:169:y:2016:i:1:d:10.1007_s10957-015-0837-2
    DOI: 10.1007/s10957-015-0837-2
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    References listed on IDEAS

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    1. Victor J. Tremblay & Carol Horton Tremblay, 2012. "New Perspectives on Industrial Organization," Springer Texts in Business and Economics, Springer, edition 127, number 978-1-4614-3241-8, October.
    2. Dockner, Engelbert J, 1992. "A Dynamic Theory of Conjectural Variations," Journal of Industrial Economics, Wiley Blackwell, vol. 40(4), pages 377-395, December.
    3. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    4. Driskill, Robert A. & McCafferty, Stephen, 1989. "Dynamic duopoly with adjustment costs: A differential game approach," Journal of Economic Theory, Elsevier, vol. 49(2), pages 324-338, December.
    5. Franklin M. Fisher, 1961. "The Stability of the Cournot Oligopoly Solution: The Effects of Speeds of Adjustment and Increasing Marginal Costs," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 28(2), pages 125-135.
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