Duopoly I: The Cournot Model

1
Duopoly IThe Cournot Model

• Class 6
• Ref Static Games and Cournot Competition.
  (Sections 9.4, 9.5.) Chapter 9. Industrial
  Organization Contemporary Theory Practice.
  Third Edition. Pepall Richards Norman.
  Thomson Ed. pp. 208226
• Industrial Economics
• Flavio Pinto

2
Contents

• The Two Sellers Game
• N-Sellers Game
• Cournot with Different Costs

3
Introduction

• Competition between two sellers
• No Cooperation
• Profit Maximization
• Nash Equilibrium
• Examples
• Implications for Social Welfare

4
The Cournot Model
5
Reaction Curves - Functions
6
Practice Problem 9.2 p. 215

• Assume that two identical firms are serving a
  market in which the inverse demand function is
  given by
• P 100 2Q
• The marginal costs for each firm are 10 per
  unit. Calculate the Cournot equilibrium outputs
  for each firm, the product price and the profits
  of each firm

7
Cournot Model for Many Firms
8
Cournot Model for Many Firms
9
Cournot Model for Different Costs
10
Reaction Curves
11
Oligopolistic Competition and Social Welfare
Monopoly
Duopoly-Cournot
Competitive Market