Cost uncertainty in an oligopoly with endogenous entry

Artikel

How does cost uncertainty affect the welfare consequences of an oligopoly? To answer this question, we investigate a Cournot oligopoly in which firms produce a homogeneous commodity and market entry is feasible. Marginal costs are unknown ex ante, that is, prior to entering the market. They become public knowledge before output choices are made. We show that uncertainty induces additional entry in market equilibrium and also raises the socially optimal number of firms. Since the first change dominates, the excessive entry distortion is aggravated. This prediction is robust to various extensions of the analytical setup. Furthermore, the welfare loss due to oligopoly tends to increase with uncertainty.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Bulletin of Economic Research ; ISSN: 1467-8586 ; Volume: 74 ; Year: 2021 ; Issue: 4 ; Pages: 927-948 ; Hoboken, NJ: Wiley

Classification and Topics

• Classification: Wirtschaft
• Subject: excessive entry ; oligopoly ; uncertainty ; welfare

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): de Pinto, Marco ; Goerke, Laszlo
• Event: Veröffentlichung
• (who): Wiley
• (where): Hoboken, NJ
• (when): 2021

Further information

• DOI: doi:10.1111/boer.12326
• Handle: http://hdl.handle.net/10419/266673
• Last update: 10.03.2025, 11:42 AM CET