University of Oulu

Externalities and Multiple Equilibria in Cournot Competition

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Author: Orjasniemi, Seppo1,2; Puhakka, Mikko1,2; Vilmi, Lauri1,2;
Organizations: 1University of Oulu, Faculty of Economics, Department of Economics
2Cornell University
Format: ebook
Version: published version
Access: open
Online Access: PDF Full Text (PDF, 0.7 MB)
Persistent link: http://urn.fi/urn:nbn:fi-fe200802011067
Language: English
Published: 2008
Publish Date: 2008-04-25
Description:

Abstract

Industry-wide externalities have been recognized as important phenomena, and are topics for a considerable body of research. In much of this work emphasis is placed on the relationship between the externality and the existence and properties of multiple equilibria that, subsequently, arise. We introduce an externality into a firm's unit cost function and study the conditions for multiple equilibria. The existence of such externalities can create situations where strategic complementarities engender multiple equilibria and coordination failures. We provide an example for multiple equilibria. We also relate the existence of multiple equilibria to the magnitudes of price elasticity of demand and the elasticity of unit cost with respect to industry output. We also perform some welfare comparisons between different equilibria.

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Series: University of Oulu, Department of Economics, Working papers
Issue: 804
Subjects:
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