Spring 2009 Seminar Series

DATE: Thursday, April 16, 2009
LOCATION: E51-057
TIME: 4:15pm
Reception immediately following in the ORC ConferenceRoom, E40-106

SPEAKER:
Georgia Perakis

TITLE
The Price of Oligopolistic Competition

ABSTRACT
There has been a lot of work in the recent years on how competition affects the overall ''efficiency'' in a system. There have been a variety of application areas in which researchers have asked this question, including transportation, internet and more recently supply chains and revenue management settings. In this talk, we will present a body of our work in this area with a particular focus on how competition affects an oligopoly market where several firms compete through prices (and if time permits also through quantities), and examine how this affects the overall ``efficiency'' in the system.

 

We will consider a setting where several firms are competing on Differentiated products that are gross-substitutes or complements. We will study the loss of efficiency using two measures, (i) profit loss from the firms? Perspective due to competition (i.e., comparison of the total profit in the industry between centralized and decentralized settings) for price competition (and time permitting for quantity competition), (ii) loss of total surplus in the system when both consumers and firms are taken into account (i.e. comparison of firms' and consumers' surplus when firms compete versus a setting where a social planner optimizes the total surplus in the system). Our goal is to understand how the presence of competition affects the overall profit as well as the total surplus in the industry and what the key drivers of the inefficiencies that arise due to competition are.

 

We first discuss a setting where each firm is selling a single product and then generalize to a setting where each firm sells several products and is faced with a variety of constraints on the prices (or quantities) of the products it offers. We provide general bounds that are independent of the constraints each firm faces and as a result, apply to a large class of settings. We will consider linear and nonlinear demand price relationships. Our research to date suggests that the number of firms competing in the market, the number of products produced in the market as well as the "market power" of each firm (in terms of how much they can each affect the total demand in the market with their decisions) play an important role.

 

(aspects of this work are joint with Amr Farahat, Jonathan Kluberg and Wei Sun)