Impact of risk aversion and countervailing tax in oligopoly
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The literature recognizes the qualitative effects of risk aversion on oligopolistic market performance, but less is known about their magnitudes. We quantitatively evaluate these effects in Cournot and Bertrand oligopolies where firms maximize mean-variance utilities under linear demand and costs. The impacts are very similar for the two types of oligopoly, but have opposite signs. The impacts of a firm’s risk aversion on outputs, prices, consumer surplus and social welfare can be expressed via potentially observable variables. Since these impacts resemble the effects of firms’ cost changes, a regulator can reduce or eliminate undesirable effects of risk aversion by changing firms’ costs with appropriate countervailing taxes.
Jin , J Y & Kobayashi , S 2016 , ' Impact of risk aversion and countervailing tax in oligopoly ' Annals of Finance , vol. 12 , no. 3 , pp. 393-408 . DOI: 10.1007/s10436-016-0285-5
Annals of Finance
Copyright (c) The Author(s) 2016. This is the final published version of the work which was originally published at https://doi.org/10.1007/s10436-016-0285-5 This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.
DescriptionKobayashi’s work was partially supported by JSPS KAKENHI Grant Number JP15K03462.
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