On the Uniqueness of the Welfare-maximizing Number of Firms Under Cournot Oligopoly

Under Cournot oligopoly with a homogeneous product, we present a sufficient condition that guarantees the uniqueness of the welfare-maximizing number of firms to attain the global maximum level of welfare by implementation of a piecemeal policy changing the number of firms gradually. We adopt Selten's (1973) 'fitting-in function' method, which relates an individual firm's output to an industry's output. When the number of firms is unique, then introducing a lump-sum profit tax (subsidy) can attain the optimal level of welfare. Indirect entry regulation is superior to direct entry regulation from the standpoint of welfare if each entrant engages in rent-seeking activities. Copyright Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research 2003.