Cost Manipulation in Oligopoly: A Duality Approach

This paper analyzes a class of two-stage Cournot games where firms are collusive in the first stage, and shows that oligopolists may have a strong incentive to redistribute resources (such as capital, pollution permits etc...) within the industry as a means of coordinating their output decision. Alternatively, one may think of a government that attempts to maximize social welfare, by setting parameters in stage one, subject to the constraint that in stage two, firms are Cournot oligopolists.