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Cournot’s model of oligopoly

  • Single good produced by n firms

  • Cost to firm i of producing qi units: Ci(qi), where Ci is

nonnegative and increasing

  • If firms’ total output is Q then market price is P (Q),

where P is nonincreasing

P r o fi t o f fi r m i , a s a f u n c t i o n o f a l l t h e fi r m s o u t p u t s :

πi(q1, . . . , qn) = qiP

j = 1 n

q j

Ci(qi).

Strategic game: players: firms e a c h fi r m s s e t o f a c t i o n s : s e t o f a l l p o s s i b l e o u t p u t s e a c h fi r m s p r e f e r e n c e s a r e r e p r e s e n t e d b y i t s p r o fi t

1

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