Mixed Oligopoly: Analysis of Consistent Equilibria

Abstract

In this paper, a model of mixed oligopoly with conjectured variations equilibrium (CVE) is examined, in which one of the agents maximizes a convex combination of its net profit with the domestic social surplus. The agents’ conjectures concern the price variations, which depend on the variations in their production outputs. Using the established existence and uniqueness results for the CVE (theexterior equilibrium) for any fixed set of feasible conjectures, the notion of the interior equilibrium is introduced by developing a conjecture consistency criterion. Then, the existence theoremfor the interior equilibrium (defined as a CVE state withconsistent conjectures) is proven. When the convex combination coefficient tends to 1 (thus transforming the model into the mixed oligopoly in its extreme form), two trends are apparent. First, for private companies, the equilibrium with consistent conjectures becomes more proficient than the Cournot-Nash equilibrium. Second, there exists a (unique) value of the convex combination coefficient such that the private agent’s aggregate profit is the same in both the above-mentioned equilibria, which makes subsidies to producers or consumers unnecessary.