Cournot Competition
Oligopolists choosing quantities: reaction functions and an equilibrium between monopoly and competition.
The Cournot Competition model, in writing
Definition
Oligopoly where firms choose QUANTITIES simultaneously: each firm's best output depends on what rivals produce, and equilibrium sits between monopoly and perfect competition.
Best response: q1 = (a − c − b·q2) / 2b ; equilibrium where best responses cross
The intuition
If your rival floods the market, the price is low and your best move is to produce less; if they hold back, produce more. Where these reaction curves cross, neither firm regrets its choice: a Nash equilibrium. Add more firms and the outcome slides toward perfect competition, which is why concentration matters for prices.
Exam tip
Total output under Cournot duopoly is BETWEEN monopoly and competitive levels; price is above marginal cost but below monopoly. Deriving one best-response function is usually the whole trick.