Game Theory for Networks. Third International ICST Conference, GameNets 2012, Vancouver, BC, Canada, May 24-26, 2012, Revised Selected Papers

Research Article

Efficiency Loss in a Cournot Oligopoly with Convex Market Demand

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  • @INPROCEEDINGS{10.1007/978-3-642-35582-0_5,
        author={John Tsitsiklis and Yunjian Xu},
        title={Efficiency Loss in a Cournot Oligopoly with Convex Market Demand},
        proceedings={Game Theory for Networks. Third International ICST Conference, GameNets 2012, Vancouver, BC, Canada, May 24-26, 2012, Revised Selected Papers},
        proceedings_a={GAMENETS},
        year={2012},
        month={12},
        keywords={Price of anarchy Cournot oligopoly revenue management},
        doi={10.1007/978-3-642-35582-0_5}
    }
    
  • John Tsitsiklis
    Yunjian Xu
    Year: 2012
    Efficiency Loss in a Cournot Oligopoly with Convex Market Demand
    GAMENETS
    Springer
    DOI: 10.1007/978-3-642-35582-0_5
John Tsitsiklis1,*, Yunjian Xu1,*
  • 1: MIT
*Contact email: jnt@mit.edu, yunjian@mit.edu

Abstract

We consider a Cournot oligopoly model where multiple suppliers (oligopolists) compete by choosing quantities. We compare the social welfare achieved at a Cournot equilibrium to the maximum possible, for the case where the inverse market demand function is convex. We establish a lower bound on the efficiency of Cournot equilibria in terms of a scalar parameter derived from the inverse demand function. Our results provide nontrivial quantitative bounds on the loss of social welfare and aggregate profit for several convex inverse demand functions that appear in the economics literature.