On Cournot's theory of oligopoly with perfect complements

Department of Economics and Decision Sciences
Speaker : Rabah Amir (Iowa)
Room T-007

Abstract :

This paper provides a thorough characterization of the properties of Cournot's so-called complementary monopoly model (or oligopoly with perfect complements) in a general setting, including existence, uniqueness and the comparative statics effects of entry. As such, this serves to unify various results from the extant literature that have typically been derived in specific contexts with limited generality. Common real-life economic applications of this model include (besides standard oligopoly) patent pools, river or highway tolls, layers of corruption, etc... Several early studies have suggested that Cournot's complementary monopoly model is the dual problem to the standard Cournot oligopoly model. This result crucially relies on the assumption that the firms have no production costs. This paper shows that if the production costs of the firms are different from zero, the nice duality between these two oligopoly settings breaks down. One implication of this breakdown is that, in contrast to the Cournot model, oligopoly with perfect complements can be a game of strategic complements in a global sense even in the presence of production costs.