A Contribution Margin Approach to Imperfect Competition

Philippe Bontems

No 26-1759, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: This paper studies symmetric oligopoly when marginal cost is not constant. In this environment, the Lerner index is not a sufficient measure of profitability: firms’ relevant margin is the contribution margin, defined relative to variable cost. The paper introduces a contribution margin index and relates it to the Lerner index through a profitability factor. This factor captures the wedge between local markups and average profitability. It also governs comparative statics for cost pass-through, market expansion, entry, profits, and concentration. The framework nests the constant marginal cost benchmark and shows how cost curvature changes the interpretation of standard oligopoly statistics.

Keywords: Pass-through; Cost Structure; Contribution Margin; Oligopoly (search for similar items in EconPapers)
JEL-codes: D21 H22 H32 L13 L51 (search for similar items in EconPapers)
Date: 2026-06
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:131904

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