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Welfare Changes in the Cournot Setting with an Empirical Application to the Telecommunications Industry

Journal of Industrial Economics, Forthcoming

42 Pages Posted: 19 Oct 2016  

Pedro Ferreira

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management; Carnegie Mellon University - Department of Engineering and Public Policy

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Date Written: July 27, 2016

Abstract

This paper characterizes the welfare efficiency of the Cournot equilibrium and provides bounds for the loss in consumer surplus, producer surplus and welfare when the number of firms in the market changes. I only assume that demand is decreasing in price and costs increasing in the quantity produced as long as Cournot equilibrium exists. I show how price, demand and average cost, before and after the number of firms in the market changes, can be used to compute these bounds. I apply these bounds to the Portuguese wireline market and conclude that the welfare loss carried by Portugal Telecom’s monopoly in 2005 reduced significantly when the company was split in 2007.

Keywords: Cournot Equilibrium, Welfare Loss, Telecommunications Industry

JEL Classification: D43, L13

Suggested Citation

Ferreira, Pedro, Welfare Changes in the Cournot Setting with an Empirical Application to the Telecommunications Industry (July 27, 2016). Journal of Industrial Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2854418

Pedro Ferreira (Contact Author)

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

Pittsburgh, PA 15213-3890
United States

Carnegie Mellon University - Department of Engineering and Public Policy ( email )

Baker Hall 129
5000 Forbes Ave
Pittsburgh, PA 15213
United States

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