A model of oligopoly
by the mathematician
and economist Antoine Cournot
. To take the simplest case of a Cournot duopoly
, imagine there are two firms selling a particular product. Each firm decides independently
how much to produce and put on the market
. However, the market price
of the good is determined by the inverse demand function
applied to the sum of what both
firms put on the market.
The outcome is found applying game theory, using the Nash equilibrium concept (although Cournot did it long before Nash did). The firms in the model do not collude to get monopoly profits, but still achieve greater profits than they would in a competitive market. A nice feature of the model is that as more firms are added, the price goes to the competitive price.
Many economists believe that the Bertrand Oligopoly model is more realistic, and in that model, prices tend toward the prices of perfect competition with only two firms.