Welfare effects in the Cournot model of oligopoly: An application on the Stockholm housing construction market
Abstract: With high demand and rising prices, housing in the Stockholm region has become an important topic. Studies indicate that high concentration in the housing construction market may contribute to the record price levels. This paper is constructed as a thought experiment where we apply a Cournot model of competition on the Stockholm tenant-owned multi-dwelling housing construction market with the assumption of fixed cost, linear demand, homogenous tastes and goods, and heterogeneous firms. The model is applied to 30 scenarios where that fixed cost is lowered from its higher bound value to allow marginal entry in order to calculate the percentage change in welfare. The findings imply that the percentage change in welfare is small within the confines of the model.
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