Monday, September 9, 2013
Posted by D. Daniel Sokol
Inger Sommerfelt Ervik (Department of Economics, University of Bergen and Department of Economics, University of Oxford) and Christian Soegaard (Department of Economics, University of Warwick) theorize Optimal Resource Allocation in General Cournot-competitive Equilibrium.
ABSTRACT: Conventional economic theory stipulates that output in Cournot competition is too low relative to that which is attained in perfect competition. We revisit this result in a General Cournot-competitive Equilibrium model with two industries that differ only in terms of productivity. We show that in general equilibrium, the more efficient industry produces too little and the less efficient industry produces too much compared to an optimal scenario with perfect competition.