Abstract
We examine equilibrium responses of a Cournot oligopoly to two typical types of nonparallel demand increases. The results based on a linear demand curve show that in terms of profits, increases in demand that result in a more elastic demand curve are beneficial to every firm, with large firms benefiting disproportionately. In sharp contrast, only certain small firms benefit from demand increases that result in a more inelastic demand. Our results have implications in marketing and government policy making.
Notes
1One might argue that an inelastic demand increase should be the case that demand rotates clockwise around the price intercept. In that case, demand increase is negative (i.e. P θ < 0), which is not comparable with the elastic demand increase defined in this article.
2An inelastic demand increase requires that the quantity intercept remains unchanged. That is, ∂(a/b)/∂θ = (a θ b – ab θ)/b 2 = 0, which leads to a a θ = ab θ/b.