Spatial Oligopolies with Cooperative Distribution

The main objects here are Nash equilibria in spatial Cournot oligopolies when pro…ts depend on coordinated distribution. Production is noncooperative, but the subsequent transportation must be performed jointly to minimize costs. Cournot-Nash equilibria for this two-stage game with partial coalitional strategies are determined by means of a mathematical-based algorithm. A numerical illustration is presented. Key words: spatial oligopolies; core allocation; Nash equilibrium; algorithms JEL classi…cation: C61, C71, C72, L13 1. Introduction This paper considers an oligopolistic industry comprising geographically separated …rms and markets. Those …rms interact at two stages. First, they produce, possibly at many locations, commodities to be delivered at several shared markets. Second, if possible, they agree on how to best distribute the goods to satisfy consumers’demand. More speci…cally, ex ante …rms decide, independently and without collaboration, how much of various commodities to produce and supply at di¤erent markets. When making these decisions, they know that all goods will …nally be transported from production sites to customers in an e¢ cient manner. An increasing number of deregulated network industries including electricity and natural gas supply are examples where competition may occur in this way: Firms often have market power in production and sales –they produce noncooperatively –whereas product distribution is regulated to enhance e¢ ciency or mitigate monopoly e¤ects, see e.g., Newbery (1999) for an overview of competitive issues regarding network industries. For practical purposes the (regulated) coordinated activities may either be subject to contracts or outsourced to competitive agents, offering appropriately specialized services. Molde Research Institute, Britveien 4, N-6411 Molde, Norway. Tlf: +47 71 21 42 84, Fax: +47 71 21 42 99, email: [email protected]. I thank Sjur D. Flåm for help on this paper. Financial support from NFR project 111039/410 and NorFA project 9730220-O is gratefully acknowledged.