The Cournot Oligopoly model, established by Antoine Augustin Cournot in 1838, is a fundamental concept in understanding how firms in an oligopoly set output to maximize profits while considering competitors' production. It introduces the Cournot Equilibrium and reaction functions, shaping strategic decision-making in markets with limited competition. This model is particularly relevant in industries like telecommunications and airlines, influencing both business strategies and policy-making in competition law.
Show More
The Cournot Oligopoly model, developed in 1838, is a vital tool for understanding competitive behavior in markets with a few dominant firms
Homogeneous Products
The model assumes that firms produce identical products
Absence of Collusion
The model assumes that firms do not collude with each other
Limited Number of Firms
The model is applicable to markets with a few dominant firms
The model introduces fundamental concepts such as reaction functions and Nash Equilibrium
The model emphasizes how firms' output decisions are influenced by their competitors' actions
The state where no firm can increase its profit by unilaterally changing its output, given the output levels of its competitors
The model shows how firms use market prices to infer their competitors' output levels and adjust their own output accordingly
The model's simplicity facilitates the understanding of complex market behaviors and can stimulate innovation
Specific Assumptions
The model's reliance on certain assumptions may limit its applicability in real-world scenarios
Lack of Multi-Strategic Behaviors
The model does not account for multiple strategic behaviors among firms
The model has shaped policy-making and offers a structured method to analyze strategic interactions in markets with limited competition
The model provides essential knowledge of competitive behavior in markets with a few dominant firms
The model sheds light on how firms make decisions regarding output and pricing in response to competitive pressures
The model serves as a stepping stone to more advanced topics in industrial organization and game theory
00
In a ______ Oligopoly, companies aim to maximize profits by producing a uniform product and assume competitors' output levels remain constant.
Cournot
01
Cournot Equilibrium definition
State where no firm can profit by changing output unilaterally, given competitors' output levels.
02
Mutual dependence in Cournot Oligopoly
Firms base output decisions on expected reactions from competitors, affecting each other's strategies.
