Inisisting on a Non-Negative price: Oligopoly, Uncertainty, Welfare, and Multiple Equilibria

Lagerlöf, J

(2006)

Lagerlöf, J (2006) Inisisting on a Non-Negative price: Oligopoly, Uncertainty, Welfare, and Multiple Equilibria. International Journal of Industrial Organization

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Abstract

I study Cournot competition under incomplete, but symmetric, information about the intercept of the linear demand function, while assuming that market price must be non-negative for all demand realisations. Although the non-negativity assumption is very natural, it has only rarely been made in the earlier literature. Yet it has important economic consequences: (1) expected demand effectively becomes convex, which means that multiple (symmetric, pure strategy) equilibria can exist; and (2) expected total surplus ca be larger when the firms do not know demand than when they do. The arguments of the paper are relevant also for price competition and for uncertainty about, e.g., cost or the number of firms, and these issues are discussed.

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This is a Submitted version
This version's date is: 02/09/2006
This item is not peer reviewed

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https://repository.royalholloway.ac.uk/items/7ece3cc7-b9a0-d2d0-a404-33e0692e31fb/1/

Item TypeJournal Article
TitleInisisting on a Non-Negative price: Oligopoly, Uncertainty, Welfare, and Multiple Equilibria
AuthorsLagerlöf, J
Uncontrolled KeywordsNon-negativity constraint, Multiple equilibria, Value of information, Cournot competition, Antitrust policy
DepartmentsFaculty of History and Social Science\Economics

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Deposited by () on 23-Dec-2009 in Royal Holloway Research Online.Last modified on 23-Dec-2009


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