The price of anarchy of cournot oligopoly

Authors:
Xiaolei Guo;Hai Yang
Affiliations:
Department of Civil Engineering, The Hong Kong University of Science and Technology, Kowloon, Hong Kong, China;Department of Civil Engineering, The Hong Kong University of Science and Technology, Kowloon, Hong Kong, China
Venue:
WINE'05 Proceedings of the First international conference on Internet and Network Economics
Year:
2005

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Abstract

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.