TY - GEN

T1 - Social Welfare under Oligopoly

T2 - 10th International Conference on Game Theory and Management (GMT2016)

AU - Parenti, Mathieu

AU - Sidorov, Alexander V.

AU - Thisse, Jacques-Francois

PY - 2017

Y1 - 2017

N2 - The paper studies the detailed comparison of the Social welfare (indirect utility) under three types of imperfect competition in a general equilibrium model: quantity oligopoly (Cournot), price oligopoly (Bertrand) and monopolistic competition (Chamberlin). The folk wisdom implies that an increasing toughness of competition in sequence Cournot-Bertrand-Chamberlin results in increasing of consumers' welfare (indirect utility). We show that this is not true in general. This is accomplished in a simple general equilibrium model where consumers are endowed with separable preferences. We find the sufficient condition in terms of the representative consumer preference providing the "intuitive" behavior of the indirect utility and show that this condition satisfy the classes of utility functions, which are commonly used in examples (e.g., CES, CARA and HARA). Moreover, we provide a series of numerical examples (and analytically verifiable conditions as well), which illustrate that violation of this condition may results in "counter-intuitive" behavior of indirect utility, when the weakest level of competition (Cournot) provides the highest amount of the consumer's welfare.

AB - The paper studies the detailed comparison of the Social welfare (indirect utility) under three types of imperfect competition in a general equilibrium model: quantity oligopoly (Cournot), price oligopoly (Bertrand) and monopolistic competition (Chamberlin). The folk wisdom implies that an increasing toughness of competition in sequence Cournot-Bertrand-Chamberlin results in increasing of consumers' welfare (indirect utility). We show that this is not true in general. This is accomplished in a simple general equilibrium model where consumers are endowed with separable preferences. We find the sufficient condition in terms of the representative consumer preference providing the "intuitive" behavior of the indirect utility and show that this condition satisfy the classes of utility functions, which are commonly used in examples (e.g., CES, CARA and HARA). Moreover, we provide a series of numerical examples (and analytically verifiable conditions as well), which illustrate that violation of this condition may results in "counter-intuitive" behavior of indirect utility, when the weakest level of competition (Cournot) provides the highest amount of the consumer's welfare.

KW - Cournot competition

KW - Bertrand competition

KW - free entry

KW - Lerner index

KW - indirect utility

KW - MONOPOLISTIC COMPETITION

KW - COURNOT

M3 - Conference contribution

SN - *****************

T3 - Contributions to Game Theory and Management

SP - 233

EP - 244

BT - CONTRIBUTIONS TO GAME THEORY AND MANAGEMENT, VOL X

A2 - Petrosyan, LA

A2 - Zenkevich, NA

PB - ST PETERSBURG UNIV GRAD SCH MANAGEMENT

Y2 - 7 July 2016 through 9 July 2016

ER -