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Inducing efficiency in oligopolistic markets with increasing returns to scale

Sengupta, Abhijit and Tauman, Yair (2011) Inducing efficiency in oligopolistic markets with increasing returns to scale Mathematical Social Sciences, 62 (2). pp. 95-100.

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Abstract

We consider a Cournot oligopoly market of firms possessing increasing returns to scale technologies (which may not be identical). It is shown that an external regulating agency can increase total social welfare without running a deficit by offering to subsidize one firm an amount which depends on the output level of that firm and the market price. The firms bid for this contract, the regulator collects the highest bid upfront and subsidizes the highest bidding firm. It is shown that there exists a subsidy schedule such that (i) the regulator breaks even, (ii) the subsidized firm obtains zero net profit and charges a price equal to its average cost, (iii) every other firm willingly exit the market and (iv) market price decreases, consumers are better off and total welfare improves.

Item Type: Article
Divisions : Faculty of Arts and Social Sciences > Surrey Business School
Authors :
NameEmailORCID
Sengupta, Abhijitabhijit.sengupta@surrey.ac.uk
Tauman, Yair
Date : 27 May 2011
DOI : 10.1016/j.mathsocsci.2011.05.004
Copyright Disclaimer : Copyright © 2011 Elsevier B.V. All rights reserved.
Additional Information : Embargo OK Metadata OK No Further Action
Depositing User : James Marshall
Date Deposited : 19 Aug 2020 10:55
Last Modified : 19 Aug 2020 10:55
URI: http://epubs.surrey.ac.uk/id/eprint/858439

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