Generalized Quantity Competition for Multiple Products and Loss of Efficiency

Authors:
Jonathan Kluberg;Georgia Perakis
Affiliations:
Operations Research Center, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139;Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139
Venue:
Operations Research
Year:
2012

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Abstract

We study a generalized model of quantity (Cournot) oligopolistic competition. The impact of competition on social surplus and firms' profit is analyzed. Firms produce multiple differentiated products and face production constraints. We compare the social surplus produced by competing firms and by colluding firms with the maximum achievable total surplus in the market. Similarly, we quantify the loss of profit that firms incur by competing instead of colluding. Our goal is to understand how the presence of competition affects the firms and society as a whole, but also to determine what are the key drivers of the inefficiencies that arise due to competition.