The Cournot outcome as the result of price competition

Pre-print, Working paper: In a homogeneous product duopoly with concave revenue and convex costs we study a two stage game in which, first, firms engage simultaneously in capacity (production) and, after production levels are made public, there is sequential price competition in the second stage. Randomizing the order of play in the price subgame, we can find: (i) that the Cournot outcome can be sustained as a pure strategy subgame perfect Nash equilibrium (SPNE) of the whole game, (ii) a SPNE in which firms produce strictly more than the Cournot outcome.

Author(s)

Pedro Jara-Moroni

Date of publication
  • 2008
Keywords JEL
C73 D43 L13
Keywords
  • Subgame perfect Nash equilibrium
  • Price
  • Quantity
  • Pure strategies
  • Cournot
Internal reference
  • PSE Working Papers n°2007-24
Version
  • 1