The Price of Anarchy of Cournot Oligopoly
Cournot oligopoly is typically inefficient in maximizing social welfare which is total surplus of consumer and producer. This paper quantifies the inefficiency of Cournot oligopoly with the term “price of anarchy”, i.e. the worst-case ratio of the maximum possible social welfare to the social welfare at equilibrium. With a parameterization of the equilibrium market share distribution, the inefficiency bounds are dependent on equilibrium market shares as well as market demand and number of firms. Equilibrium market share parameters are practically observable and analytically manageable. As a result, the price of anarchy of Cournot oligopoly established in this paper is applicable to both practical estimation and theoretical analysis.
KeywordsSocial Welfare Congestion Game Inverse Demand Function Practical Estimation Perfect Competition
Unable to display preview. Download preview PDF.
- 4.Cowling, K., Mueller, D.: The social costs of monopoly. Econom. J. 88, 727–748 (1978)Google Scholar
- 5.Geoffrey, A.J., Philip, J.R.: Advanced Microeconomic Theory. Addison Wesley Longman, Amsterdam (2001)Google Scholar
- 6.Harberger, A.C.: Monopoly and resource allocation. American Economic Review 44, 77–87 (1954)Google Scholar
- 8.Johari, R., Tsitsiklis, J.N.: Efficiency loss in Cournot games. Technical Report LIDS-P-2639, Laboratory for Information and Decision Systems. MIT (January 2005)Google Scholar
- 11.Papadimitriou, C.H.: Algorithms, games, and the Internet. In: Proceedings of the 33rd Annual ACM Symposium on Theory of Computing (STOC), Heraklion, Greece, pp. 749–753. ACM Press, New York (2001)Google Scholar