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On the stability of Cournot equilibrium when the number of competitors increases

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Puu, Tonu

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Abstract This article reconsiders whether the Cournot equilibrium really becomes a perfect competition equilibrium when the number of competitors goes to infinity. It has been questioned whether the equilibrium remains stable with an increasing number of firms. Contraindications were given for linear and for isoelastic demand functions. However, marginal costs were then taken as constant, which means adding more potentially infinite-sized firms. As we want to compare cases with few large firms to cases with many small firms, the model is tuned so as to incorporate capacity limits, decreasing with an increasing number of firms. Then destabilization is avoided.
Classification Political Economy
Free Keywords Cournot oligopoly; Capacity limits; Stability
Document language English
Publication Year 2008
Page/Pages p. 445-456
Journal Journal of Economic Behavior & Organization, 66 (2008) 3-4
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)