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Statistical moments analysis of production and welfare in multi-product Cournot oligopoly

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  • Lapan, Harvey E.
  • Hennessy, David A.

Abstract

Our context involves N Cournot oligopolists producing M products at constant marginal costs when preferences are quasilinear. We identify relationships between second moments of unit costs and second moments of firm-level production. For example, a larger variance in unit costs of a product increases own output variance and the variance of any other output. We also investigate how second moments of unit costs affect industry cost efficiency. Industry costs can rise if the wrong firm secures a cost reduction. For quadratic preferences, it is shown that Zhao's (Zhao, J., 2001. A characterization for the negative welfare effects of cost reduction in Cournot oligopoly. International Journal of Industrial Organization 19, 455–469 (3–4, March)) share criteria for an increase in unit costs to increase welfare extend to the multi-product setting.

Suggested Citation

  • Lapan, Harvey E. & Hennessy, David A., 2008. "Statistical moments analysis of production and welfare in multi-product Cournot oligopoly," ISU General Staff Papers 200803010800001156, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:200803010800001156
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    1. Szidarovszky, Ferenc & Li, Weiye, 2000. "A note on the stability of a Cournot-Nash equilibrium: the multiproduct case with adaptive expectations," Journal of Mathematical Economics, Elsevier, vol. 33(1), pages 101-107, February.
    2. Zhao, Jingang, 2001. "A characterization for the negative welfare effects of cost reduction in Cournot oligopoly," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 455-469, March.
    3. Long, Ngo Van & Soubeyran, Antoine, 2001. "Cost Manipulation Games in Oligopoly, with Costs of Manipulating," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 505-533, May.
    4. Lapan, Harvey E. & Hennessy, David A., 2006. "A note on cost arrangement and market performance in a multi-product Cournot oligopoly," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 583-591, May.
    5. Giancarlo Moschini & Daniele Moro & Richard D. Green, 1994. "Maintaining and Testing Separability in Demand Systems," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(1), pages 61-73.
    6. Seade, J, 1985. "Profitable Cost Increases and the Shifting of Taxation : Equilibrium Response of Markets in Oligopoly," The Warwick Economics Research Paper Series (TWERPS) 260, University of Warwick, Department of Economics.
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    9. Fevrier, Philippe & Linnemer, Laurent, 2004. "Idiosyncratic shocks in an asymmetric Cournot oligopoly," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 835-848, June.
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    Cited by:

    1. Jiang, Jun & Shang, Pengjian & Zhang, Zuoquan & Li, Xuemei, 2018. "The multi-scale high-order statistical moments of financial time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 512(C), pages 474-488.
    2. Wang, X. Henry & Zhao, Jingang, 2022. "Merger effects in asymmetric and differentiated Bertrand oligopolies," Mathematical Social Sciences, Elsevier, vol. 120(C), pages 37-49.

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