Subsidies in Oligopoly Markets: a Welfare Comparison Between Symmetric and Asymmetric Costs

Abstract

This article studies welfare effects of uniform production subsidies in oligopoly markets, comparing cases of symmetric and asymmetric costs. Cost asymmetry reduces the welfare impact relative to the symmetric-cost case if the demand function is concave and magnifies the impact if demand is convex. The welfare difference increases with the degree of market power and with the cost differential in the industry.