Nonparallel demand increases in an asymmetric Cournot oligopoly

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.