and Laurent Linnemer
"Idiosyncratic shocks in an asymmetric Cournot oligopoly"
JEL codes: L13, L14
Keywords: Cournot, welfare, asymmetric costs, industry shock
Abstract: Several authors have studied the impact of a marginal cost variation in the Cournot model on consumers' surplus, firms' profits and social welfare. We unify and extend the results when all marginal costs change simultaneously. Hence we bring together two strands of literature, respectively on mean-preserving and subgroup common shocks. The effect of any shock is decomposed into two parts: an average impact and a heterogeneity effect. The former improves welfare if the inverse demand function is concave enough and the market is concentrated enough, the later when the diffusion of the shock is negatively correlated with the market share distribution. Finally, we apply our decomposition to various special cases.Pre-publication pdf copy.