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Theoretical and Applied Economics
No. 4 / 2022 (633), Winter

Cost structures, technology levels and collusion

Suryaprakash MISHRA
National Law University, Delhi, India

Abstract. We analyze the role of technology levels in collusion and welfare in Cournot duopoly set up with a linear demand and quadratic costs. We show that for relatively inefficient technologies, the collusive profit is dominated by the Cournot-Nash profit; thus, the firms with not-so good technologies would not collude. We also show that as technology improves, the collusive profit dominates the Cournot-Nash profit, which creates an incentive for collusion, i.e., innovation would lead to collusion. We also show that, for very good/bad technology, innovation would not be anticonsumers’ welfare, whereas for the intermediate one, it may be.

Keywords: technology, innovation, collusion, Cournot-Nash, profit, welfare, costs.

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