Mathematical Illustration of the Cournot Competition

Journal for Advanced Research in Commerce and Management Studies, 2015, Volume 2, Issue 2, pp. 7-18, ISSN: 2394-837X

11 Pages Posted: 3 Oct 2014 Last revised: 7 Oct 2016

Date Written: October 1, 2014

Abstract

As many pupil find difficult to understand the initial explanations of duopoly (two firms in a market), this paper attempts to provide a simplified mathematical illustration with a numeric example about the basic explanation of duopoly presented by Antoine Augustin Cournot (1801-1877). This explanation considers two situations: free entry and blocked entry, in a hypothetical context with five different scenarios. The results of these scenarios in terms of quantities, prices and profits of two firms are initially presented for comparison. In the two situations, a firm should decide on how to utilize the market environment to maximize profit as its optimum. Since two firms are potentially in action, utilising the situations by each firm has been analysed. The given situational and scenario analyses reveal that free entry situation mostly benefits both firms to economically and efficiently operate in the market, as it brings asymmetrical sharing of market and profit by both firms in the long run.

Keywords: Cournot, duopoly, monopoly, oligopoly, incumbent, free entry, blocked entry

JEL Classification: A22, D42, D43

Suggested Citation

Senthilnathan, Samithamby, Mathematical Illustration of the Cournot Competition (October 1, 2014). Journal for Advanced Research in Commerce and Management Studies, 2015, Volume 2, Issue 2, pp. 7-18, ISSN: 2394-837X , Available at SSRN: https://ssrn.com/abstract=2504333 or http://dx.doi.org/10.2139/ssrn.2504333

Samithamby Senthilnathan (Contact Author)

International Training Institute ( email )

PO Box 6322
Scratchley Road, Badili
Port Moresby, National Capital District
Papua New Guinea

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