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The Complete Welfare Effects of Cost Reductions in a Cournot Oligopoly

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Abstract

This paper provides the smallest upper bound or the critical level for a Cournot firm's market share below which its cost reduction reduces welfare. It shows that a firm's cost reduction increases social welfare with nonlinear demand and nonlinear costs if and only if its market share is above the critical level, which is equal to a weighted sum of the other firms' market shares. The paper also reports similar results for technological spill-overs within any given set of firms.

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Authors and Affiliations

  1. Department of Economics, University of Saskatchewan, Saskatoon, SK, S7N 5A5, Canada

    Jingang Zhao

  2. School of Law, Washington and Lee University, Lexington, VA, 24450, USA

    Donald J. Smythe

Authors
  1. Donald J. Smythe
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  2. Jingang Zhao
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Correspondence to Jingang Zhao.

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Smythe, D.J., Zhao, J. The Complete Welfare Effects of Cost Reductions in a Cournot Oligopoly. J Econ 87, 181–193 (2006). https://doi.org/10.1007/s00712-005-0166-2

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  • DOI: https://doi.org/10.1007/s00712-005-0166-2

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