The Cournot competition is an economic model in which competing firms choose a quantity to produce independently and simultaneously. Meaning of duopole in the French dictionary with examples of use. Synonyms for duopole This theory was established by Antoine-Augustin Cournot in Article détaillé: Duopole de Cournot. Les hypothèses de l’analyse de Cournot sont: Chaque firme considère.
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Cournot competition is an economic model used to describe an industry structure in which companies compete on the amount of output they will produce, which they decide on independently of each other and at the same time.
It is named after Antoine Augustin Cournot — who was inspired by observing competition in a spring water duopoly. An essential assumption of this model is the “not conjecture” that each firm aims to maximize profits, based on the expectation that its own output decision will not have an effect on the decisions of its rivals.
Price is a commonly known decreasing function of total output. Normally the cost functions are treated as common knowledge. The cost functions may duople the same or different among firms. The market price is set at a level such that demand equals the total quantity produced by all ce. Each firm takes the quantity set by its competitors as a given, evaluates its residual demand, and then behaves courot a monopoly.
Cournot’s duopoly model
Antoine Augustin Cournot first outlined his theory of competition in his volume Recherches sur duopoke Principes Mathematiques de la Theorie des Richesses as a way of describing the competition with a market for spring water dominated by two suppliers a duopoly. The consequence of this is that in equilibrium, each firm’s expectations of how other firms will act are shown to be correct; when all is revealed, no firm wants to change its output decision.
This section presents an analysis of the model with 2 firms and ciurnot marginal cost. Equilibrium prices will be:. To calculate the Nash equilibrium, the best response functions of the firms must first be calculated. The profit of firm i is revenue minus cost. Revenue is the product of price and quantity and cost is given by the firm’s cost function, so profit is as described above: Suppose the industry has the following price structure: These are the firms’ best response functions.
In Nash equilibria, both firms will be playing best responses so solving the above equations simultaneously. With linear demand and identical, constant marginal cost the equilibrium values are as follows:.
The Cournot Theorem then states that, in absence of fixed costs of production, as the number of firms in the market, Ngoes to infinity, market output, Nqgoes to the courmot level and the price converges to marginal cost. Hence with many firms a Cournot market approximates a perfectly competitive market. This result can be generalized to the case suopole firms with different cost structures under appropriate restrictions and non-linear demand.
When the market is characterized by fixed costs of production, however, we can endogenize the number of competitors imagining that firms enter in the market until their profits are zero. This equilibrium is usually known as Cournot equilibrium with endogenous entry, or Marshall equilibrium.
However, as the number of firms increases towards infinity, the Cournot model gives the same result as in Bertrand model: The market price is pushed to marginal cost level.
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