Cournot Oligopoly (2/2)

Non-Linear Demand Curve Variable Marginal Costs

Assumptions
Assumptions

• N profit maximizing oligopolists • N profit maximizing oligopolists

• Demand: p(q) – twice differentiable inverse demand • Demand: p(q) – twice differentiable inverse
curve demand curve
• Costs: c – constant marginal costs • Costs: ci – variable marginal costs

• Firm specific cost pass-on – interaction between

Analysis
Analysis

• Uniform cost pass-on - 1/(N+1- 𝞪) firm-specific factors and firm-unspecific factors

• Compared to the standard case, • Compared to the standard case,
• Pass-on stronger when demand is convex (𝞪 > • Pass-on stronger for decreasing MC and
0) and weaker when demand is concave (𝞪 < 0) weaker for increasing MC curve

• 1/N firms realize cost savings • 1/N firms realize cost savings
• At least 1/(N+1) cost savings passed on when • At least 1/(N+1) cost savings passed on when
Rule of thumb

Rule of thumb
demand is convex and at most 1/(N+1) when
concave
• >=1/N firms realize cost savings
• At least N/(N+1) cost savings passed on when
demand is convex and at most N/(N+1) when
concave
demand is convex and at most 1/(N+1) when
concave
• >=1/N firms realize cost savings
• At least N/(N+1) cost savings passed on
when demand is convex and at most N/
(N+1) when concave