Endogenous Equity Shares in Cournot Competition: Welfare Analysis and Policy

Kanjilal Kiriti () and Felix Munoz-Garcia
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Kanjilal Kiriti: Department of Social Sciences and Humanities, Indraprastha Institute of Information Technology, New Delhi110020, India

The B.E. Journal of Economic Analysis & Policy, 2020, vol. 20, issue 1, 21

Abstract: We consider a duopoly in which firms can strategically choose equity shares on their rival’s profits before competing in quantities. We identify equilibrium equity shares, and subsequently compare them against the optimal equity shares that maximize social welfare. Most previous studies assume that equity shares are exogenous, and those allowing for endogenous shares do not evaluate if equilibrium shares are socially excessive or insufficient. Our results also help us identify taxes on equity acquisition that induce firms to produce a socially optimal output without the need to directly tax output levels.

Keywords: cournot competition; endogenous equity shares; social optimum; equity share taxes (search for similar items in EconPapers)
JEL-codes: D43 D6 L10 L2 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1515/bejeap-2018-0085

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