The basic equilibrium concept employed most commonly in oligopoly theory is that of the nash equilibrium , which originated in cournot’s analysis of duopoly (1838) the nash equilibrium applies best in situations of a one-off game with perfect. This violates a major assumption of the basic competitive model in that model, –rms are small and prices are taken as given oligopoly models 29 / 55 hirschman-her–ndal index note that the hhi only measures market power under the assumptions of the cournot model if the market involves di⁄erentiated products, then the hhi is a. Formal analysis of oligopoly has focussed on two basic models: cournot and bertrand cournot analysis assumes that a þrm determines its sales while price is determined by some unspeciþed agent so that market demand equals the total amount oﬀered.
Although cournot’s model was based on some unrealistic assumptions, his method of analysis has been useful for subsequent theoretical development in the areas of duopoly and oligopoly the assumptions of the cournot model. The distinctive feature of the different oligopoly models is the way they attempt to capture the interdependence of firms in the market perhaps the best known is the cournot model in fact, the earliest duopoly model was developed in 1838 by the french economist augustin cournot it is treated as the classical solution to the [.
Cournot-nash model the cournot-nash model is the simplest oligopoly model in this model there are two likewise positioned firms, the firms competes on the basis of the capacity rather than price and each firm makes and production decision assuming that the other firm's actions is fixed. 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). French mathematician augustin cournot introduced the model in 1838 the basic version of the model dealt with a duopoly, or two main producers in a market while it remains the standard for oligopolistic competition, the model can be extended to include multiple firms.
Sweezy (kinked-demand) model environment few firms in the market serving many consumers firms produce differentiated products barriers to entry each firm believes rivals will match (or follow) price reductions, but won’t match (or follow) price increases key feature of sweezy model – price-rigidity.
The model of cournot, on the other hand, has the very good property that it converges smoothly to the competitive outcome when the number of firms increases, and coincides with the standard monopolistic model when there is only one firm.
However, the basic assumption in the two models is not exactly the same in cournot’s model, the basic assumption relates to the output policy, but in bertrand’s model, it relates to the price policy therefore, the two models yield different results. The model may be presented in many ways the original version is quite limited in that it makes the assumption that the duopolists have identical products and identical costs actually cournot illustrated his model with the example of two firms [.