Breaking Cournot: The Effects of Capacity-Adjusting Technology

Richard J. Arend ()
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Richard J. Arend: School of Business, College of Management & Human Service, University of Southern Maine, P.O. Box 9300, Portland, ME 04104, USA

JRFM, 2022, vol. 15, issue 9, 1-11

Abstract: The technological improvements modeled for Cournot competition have primarily focused on production cost reductions and scope effects. We consider a case where the technology improves the ability to affect the production capacity constraints instead. We find that although such technological progress entails public benefits in the form of greater consumer surplus and social welfare, it is likely to have limited and even sometimes harmful private effects (e.g., to firm profits). We formally model this technological improvement possibility through the relevant variants of oligopolies and rival technological asymmetries. We describe and discuss the strategic implications for managers and policy-makers considering investing and exploiting such capacity-adjusting technologies. We also flesh out the many core areas for future work to follow up on in our initial unique results.

Keywords: cournot competition; process technology; profits; social welfare; strategic commitment (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2022
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