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On the Uniqueness of the Welfare–maximizing Number of Firms Under Cournot Oligopoly
Author(s) -
Ohkawa Takao,
Okamura Makoto
Publication year - 2003
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/1467-8586.00171
Subject(s) - cournot competition , oligopoly , uniqueness , economics , welfare , microeconomics , subsidy , profit (economics) , free entry , inverse demand function , homogeneous , function (biology) , demand curve , mathematics , market economy , mathematical analysis , combinatorics , evolutionary biology , biology
Under Cournot oligopoly with a homogeneous product, we present a sufficient condition that guarantees the uniqueness of the welfare–maximizing number of firms to attain the global maximum level of welfare by implementation of a piecemeal policy changing the number of firms gradually. We adopt Selten's (1973) ‘fitting–in function’ method, which relates an individual firm's output to an industry's output. When the number of firms is unique, then introducing a lump–sum profit tax (subsidy) can attain the optimal level of welfare. Indirect entry regulation is superior to direct entry regulation from the standpoint of welfare if each entrant engages in rent–seeking activities.