Robust Quantitative Comparative Statics for a Multimarket Paradox

We introduce a quantitative approach to comparative statics that allows to bound the maximum effect of an exogenous parameter change on a system's equilibrium. The motivation for this approach is a well known paradox in multimarket Cournot competition, where a positive price shock on a monopoly market may actually reduce the monopolist's profit. We use our approach to quantify for the first time the worst case profit reduction for multimarket oligopolies exposed to arbitrary positive price shocks. For markets with affine price functions and firms with convex cost technologies, we show that the relative profit loss of any firm is at most 25% no matter how many firms compete in the oligopoly. We further investigate the impact of positive price shocks on total profit of all firms as well as on social welfare. We find tight bounds also for these measures showing that total profit and social welfare decreases by at most 25% and 16.6%, respectively. Finally, we show that in our model, mixed, correlated and coarse correlated equilibria are essentially unique, thus, all our bounds apply to these game solutions as well.Comment: 23 pages, 1 figur

Price and welfare effects and regulation of horizontal mergers

Generally, mergers represent a significant part of the economy, and they include a trade-off between efficiency effects and anticompetitive effects. Mergers may produce efficiency effects such as reallocating costs but also anticompetitive effects such as price increases or quality decreases. This literature review studies the effects of mergers on price and welfare under the Cournot model. This thesis shows that mergers which do not include synergies, such as production reallocations, result with higher prices. Moreover, the privately profitable mergers will increase the aggregate welfare. Even though the aggregate welfare will increase, the consumer surplus will decrease through higher prices. Thus, the welfare effects are controversial since there are several ways to examine the welfare effects. Further, crucial part of merger analysis is the merger regulation. Competition authorities desire is to protect consumers’ rights through regulation. Thus, this thesis includes two merger cases in Finnish healthcare sector, and their effects to the competition and market. The merger analysis process of competition authorities has similarities with the theoretical framework introduced in this thesis

Profit Loss in Cournot Oligopolies

We consider a Cournot oligopoly model where multiple suppliers (oligopolists) compete by choosing quantities. We compare the aggregate profit achieved at a Cournot equilibrium to the maximum possible, which would be obtained if the suppliers were to collude. We establish a lower bound on the profit of Cournot equilibria in terms of a scalar parameter derived from the inverse demand function and the number of suppliers. We also provide another lower bound that depends on the maximum of the suppliers ’ market shares. The lower bounds are tight when the inverse demand function is affine. Our results provide nontrivial quantitative bounds on the loss of aggregate profit for several inverse demand functions that appear in the economics literature