Cournot Competition in Networked Markets

Kostas Bimpikis (), Shayan Ehsani () and Rahmi İlkılıç ()
Additional contact information
Kostas Bimpikis: Graduate School of Business, Stanford University, Stanford, California 94305
Shayan Ehsani: Management Science and Engineering, Stanford University, Stanford, California 94305
Rahmi İlkılıç: Department of Industrial Engineering, University of Chile, Santiago, Chile

Management Science, 2019, vol. 67, issue 6, 2467-2481

Abstract: The paper considers a model of competition among firms that produce a homogeneous good in a networked environment. A bipartite graph determines which subset of markets a firm can supply to. Firms compete à la Cournot and decide how to allocate their production output to the markets they are directly connected to. We provide a characterization of the production quantities at the unique equilibrium of the resulting game for any given network. Our results identify a novel connection between the equilibrium outcome and supply paths in the underlying network structure. We then proceed to study the impact of changes in the competition structure, for example, due to a firm expanding into a new market or two firms merging, on firms’ profits and consumer surplus. The modeling framework we propose can be used in assessing whether expanding in a new market is profitable for a firm, identifying opportunities for collaboration, for example, a joint venture between competing firms, and guiding regulatory action in the context of market design and antitrust analysis. The online appendix is available at https://doi.org/10.1287/mnsc.2018.3061 . This paper was accepted by Gad Allon, operations management.

Keywords: Cournot competition; noncooperative games; networks; horizontal mergers (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

Downloads: (external link)
https://doi.org/10.1287/mnsc.2018.3061 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:65:y:2019:i:6:p:2467-2481

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().