Implementation of social optimum in oligopoly

This paper presents a decentralized mechanism implementing socially optimal output choices by non-cooperatively acting oligopolists. A decentralized mechanism is a vector of balanced transfers among firms determined as a function of firms' output choices. The mechanism is devised by a regulator with a full knowledge of demand and without any knowledge of the firms' cost functions. Restricting the set of admissible demand and cost functions such that the firms always have an incentive to produce, it turns out that the socially optimal solution is implementable insofar as the demand function is a polynomial of at most (n-1)th degree, n being the number of firms in the industry.