Essential of Cournot oligopoly model

This thesis examines as well as compares four essential issues of the Cournot oligopoly model--existence, uniqueness, and stability of the equilibrium solution, and the competitive property of the model. A Cournot equilibrium solution exists for the market when the marginal revenue of each firm declines due to an output expansion by all other firms. The existing Cournot solution is unique when a non-zero Jacobian determinant of the marginal profit functions exist. The equilibrium solution is stable when two conditions are simultaneously satisfied: (i) each firm's marginal cost does not fall faster than the market demand curve, and (ii) on the aggregate the marginal profit of the firms decreases as all the firms expand their outputs. The existence, uniqueness, and stability are necessary properties for the Cournot equilibrium solution to become quasi-competitive. However, the Cournot solution will converge towards the competitive solution only in absence of economies of scale. These results have an important policy implication that, allowing entry into an oligopolistic market will improve the market performance.