Monopoly Profit Lower than Oligopoly due to Risk Aversion

Jim Yongtao Jin, Shinji Kobayashi

Research output: Contribution to journalArticlepeer-review

Abstract

The industry profit is usually maximized under monopoly and falls with the number of firms in a Cournot oligopoly. However, demand uncertainty and risk aversion reduce firms’ outputs, thus raising oligopoly profits and reducing monopoly one. Given a liner demand and costs and a mean-variance utility, we obtain the necessary and sufficient condition for a monopoly’s profit and utility to be lower than an oligopoly. We also find such a condition for collusion to yield a lower profit. Finally, we provide a sufficient condition for a monopoly profit to be lower than an oligopoly given a general non-linear demand function.
Original languageEnglish
Pages (from-to)1010-1015
Number of pages6
JournalEconomics Bulletin
Volume43
Publication statusPublished - 30 Jun 2023

Keywords

  • Monopoly
  • Oligopoly
  • Risk aversion
  • Demand uncertainty

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