Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/242847 
Year of Publication: 
2021
Series/Report no.: 
IAAEU Discussion Paper Series in Economics No. 05/2021
Publisher: 
University of Trier, Institute for Labour Law and Industrial Relations in the European Union (IAAEU), Trier
Abstract: 
How does cost uncertainty affect the welfare consequences of an oligopoly? To answer this question, we investigate a Cournot oligopoly in which firms produce a homogeneous commodity and market entry is feasible. Marginal costs are unknown ex-ante, i.e. prior to entering the market. They become public knowledge before output choices are made. We show that uncertainty induces additional entry in market equilibrium and also raises the socially optimal number of firms. Since the first change dominates, the excessive entry distortion is aggravated. This prediction is robust to various extensions of the analytical set-up. Furthermore, the welfare loss due to oligopoly tends to increase with uncertainty.
Subjects: 
Oligopoly
Excessive Entry
Uncertainty
Welfare
JEL: 
D43
L13
Document Type: 
Working Paper

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