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An increase in a firm’s marginal cost can raise its profit

Year: 2025

Type: article

Abstract: A firm in a Cournot industry can benefit from an increase in its marginal cost while its rivals' costs are unchanged. This requires the firm's profit margin to be increasing in its marginal cost and outputs to be strategic complements. The margin increases if inverse demand curvature exceeds the number of firms. The main examples have demand functions with constant price elasticities below 1 and a duopoly.

Source: Economics Letters

DOI: 10.1016/j.econlet.2025.112529

Author: Simon Cowan

Institution: University of Oxford

Language: English

Topic: Merger and Competition Analysis

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,030

OpenAlex ID: W4413238686

FWCI: 0.947

Cites: 7

Cited by: 1

Related to: 10