Social Concern in a Bilateral Monopoly with Diseconomies of Scale

Abstract

This study examines socially concerned delegation in a bilateral monopoly where upstream production exhibits diseconomies of scale, considering both manufacturer-leadership and simultaneous-move timing structures. While existing studies emphasize the coordination-improving effects of socially concerned delegation under standard cost conditions, sufficiently strong upstream diseconomies can overturn these results. In the manufacturer-leadership game, socially concerned delegation may fail to generate a Pareto improvement because the resulting output expansion amplifies convex production costs. In the simultaneous-move game, equilibrium negative social concern emerges, reflecting a strategic incentive to restrain output under increasing marginal costs.