Social Welfare under Oligopoly: Does the Strengthening of Competition in Production Increase Consumers' Well-Being?

Mathieu Parenti, Alexander V. Sidorov, Jacques-Francois Thisse

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Abstract

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.

Original languageEnglish
Title of host publicationCONTRIBUTIONS TO GAME THEORY AND MANAGEMENT, VOL X
EditorsLA Petrosyan, NA Zenkevich
PublisherST PETERSBURG UNIV GRAD SCH MANAGEMENT
Pages233-244
Number of pages12
ISBN (Print)*****************
Publication statusPublished - 2017
Event10th International Conference on Game Theory and Management (GMT2016) - St Petersburg
Duration: 7 Jul 20169 Jul 2016

Publication series

NameContributions to Game Theory and Management
PublisherST PETERSBURG UNIV GRAD SCH MANAGEMENT
Volume10
ISSN (Print)2310-2608

Conference

Conference10th International Conference on Game Theory and Management (GMT2016)
CitySt Petersburg
Period07.07.201609.07.2016

Keywords

  • Cournot competition
  • Bertrand competition
  • free entry
  • Lerner index
  • indirect utility
  • MONOPOLISTIC COMPETITION
  • COURNOT

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