Insisting on a Non-negative Price: Oligopoly, Uncertainty, Welfare and Multiple Equilibria

Johan Lagerlof

No 3901, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: I study Cournot competition under incomplete information about demand while assuming that market price must be non-negative for all demand realizations. Although this assumption is very natural, it has only rarely been made in the earlier literature. Yet it has important economic consequences: (1) multiple (symmetric, pure strategy) equilibria can exist, despite the fact that demand and cost are linear; and (2) expected total surplus can be larger when the firms do not know demand than when they do, a result which has important implications for the social desirability of information sharing. The arguments of the paper are relevant also for price competition and for uncertainty about, e.g., cost or the number of firms, and these issues are discussed.

Keywords: Non-negativity constraint; Multiple equilibria; Value of information; Information sharing; Trade associations; Antitrust policy (search for similar items in EconPapers)
JEL-codes: D42 D43 D80 L12 L13 L40 (search for similar items in EconPapers)
Date: 2003-05
New Economics Papers: this item is included in nep-com
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP3901 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Insisting on a non-negative price: Oligopoly, uncertainty, welfare, and multiple equilibria (2007)
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:cpr:ceprdp:3901

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP3901

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().