Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Bergen, Department of Economics

No 05/13: OPTIMAL RESOURCE ALLOCATION IN GENERAL COURNOTCOMPETITIVE EQUILIBRIUM

Inger Sommerfelt Ervik () and Christian Soegaard ()
Additional contact information
Inger Sommerfelt Ervik: Department of Economics, University of Bergen, Postal: University of Bergen, Department of Economics, Fosswinckelsgate 14, 5007 Bergen
Christian Soegaard: Department of Economics, University of Warwick, Postal: Department of Economics, University of Warwick, Coventry CV4 7AL, England, UK

Abstract: Conventional economic theory stipulates that output in Cournot competition is too low relative to that which is attained in perfect competition. We revisit this result in a General Cournot-competitive Equilibrium model with two industries that di er only in terms of productivity. We show that in general equilibrium, the more ecient industry produces too little and the less ecient industry produces too much compared to an optimal scenario with perfect competition.

Keywords: Cournot oligopoly; GOLE (General Oligopolistic Equilibrium); industrial policy

JEL-codes: D50; H21; L13

9 pages, June 20, 2013

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