Monopoly profit lower than oligopoly due to risk aversion

Jim Jin () and Shinji Kobayashi ()
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Jim Jin: University of St Andrews
Shinji Kobayashi: Nihon University

Economics Bulletin, 2023, vol. 43, issue 2, 1010 - 1015

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.

Keywords: monopoly; oligopoly; risk aversion; demand uncertainty (search for similar items in EconPapers)
JEL-codes: D4 L1 (search for similar items in EconPapers)
Date: 2023-06-30
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