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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 (1801–1877) who was inspired by observing competition in a spring water duopoly. [1]
A Cournot duopoly is a model of strategic interaction between two firms where they simultaneously choose their output levels, assuming the rival's output level is fixed. The firms compete on quantity, and each firm attempts to maximize its profit given the other firm's output level.
Cournot quantity competition, one of the first models of oligopoly markets was developed by Augustin Cournot in 1835. In Cournot’s model, there are two firms and each firm selects a quantity to produce, and the resulting total output determines the market price. [9] Bertrand Price Competition, Joseph Bertrand was the first to analyze this ...
The Edgeworth Paradox assumption of the Cournot model is as follows: 1. The production capacity of the two manufacturers is limited. Under a certain price level, the output of a particular Oligopoly cannot meet the market demand at this price level so that another manufacturer can obtain the residual market demand. 2.
The Cournot duopoly model developed in his book also introduced the concept of a (pure strategy) Nash equilibrium, the reaction function and best-response dynamics. Cournot believed that economists must utilize the tools of mathematics only to establish probable limits and to express less stable facts in more absolute terms.
Competition is well defined through the Cournot's model because, when there are infinite many firms in the market, the excess of price over marginal cost will approach to zero. [4] A duopoly is a special form of oligopoly where the market is made up of only two firms.
This was a point first raised by Francis Edgeworth [5] and gave rise to the Bertrand–Edgeworth model. Integer pricing. Prices higher than MC are ruled out because one firm can undercut another by an arbitrarily small amount. If prices are discrete (for example have to take integer values) then one firm has to undercut the other by at least ...
Cournot, a professor of mathematics, developed a mathematical treatment in 1838 for duopoly—a market condition defined by competition between two sellers. [20] This treatment of competition, first published in Researches into the Mathematical Principles of Wealth, [21] is referred to as Cournot duopoly. It is assumed that both sellers had ...