Article ID: | iaor201111223 |
Volume: | 39 |
Issue: | 6 |
Start Page Number: | 414 |
End Page Number: | 418 |
Publication Date: | Nov 2011 |
Journal: | Operations Research Letters |
Authors: | Perakis Georgia, Farahat Amr |
Keywords: | programming: multiple criteria |
We study the efficiency of price competition among multi‐product firms in differentiated oligopolies. Under a general affine demand model, we show that total surplus (sum of industry profit and consumers’ surplus) under competition is at least 75% of the maximum total surplus achievable by a centralized planner. We also show, in contrast to more stylized oligopoly models, that price collusion can increase total surplus and that competition does not, in general, yield a Pareto efficient trade‐off between industry profit and consumers’ surplus. However, the maximum deviation of total surplus from Pareto optimality is less than 10%. These results have implications regarding the effectiveness of current anti‐trust regulations.