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Jim Jin and Shinji Kobayashi
''Monopoly profit lower than oligopoly due to risk aversion''
( 2023, Vol. 43 No.2 )
The industry profit is usually maximized under monopoly and falls with the number of firms in a Cournot oligopoly. However, demand uncertainty and risk aversion reduce firms' outputs, thus raising oligopoly profits and reducing monopoly one. Given a liner demand and costs and a mean-variance utility, we obtain the necessary and sufficient condition for a monopoly's profit and utility to be lower than an oligopoly. We also find such a condition for collusion to yield a lower profit. Finally, we provide a sufficient condition for a monopoly profit to be lower than an oligopoly given a general non-linear demand function.
Keywords: monopoly, oligopoly, risk aversion, demand uncertainty
JEL: D4 - Market Structure and Pricing: General
L1 - Market Structure, Firm Strategy, and Market Performance: General
Manuscript Received : Jun 28 2022 Manuscript Accepted : Jun 30 2023

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