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The empirical content of Cournot competition

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  • Laurens CHERCHYE
  • Thomas DEMUYNCK
  • Bram DE ROCK

Abstract

We consider the testable implications of the Cournot model of market competition. Our approach is nonparametric in that we abstain from imposing any functional specification on market demand and firm cost functions. We derive necessary and sufficient conditions for (reduced form) equilibrium market price and quantity functions to be consistent with the Cournot model. In addition, we present identification results for the corresponding inverse market demand function and the firm cost functions. Finally, we use our approach to derive testable restrictions for the models of perfect competition, collusion and conjectural variations. This identifies the conditions under which these different models are empirically distinguishable from the Cournot model.

Suggested Citation

  • Laurens CHERCHYE & Thomas DEMUYNCK & Bram DE ROCK, 2011. "The empirical content of Cournot competition," Working Papers of Department of Economics, Leuven ces11.11, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    • Handle: RePEc:ete:ceswps:ces11.11
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    Cited by:

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    2. Lee, SangMok, 2012. "The testable implications of zero-sum games," Journal of Mathematical Economics, Elsevier, vol. 48(1), pages 39-46.
    3. Oleksandr Shcherbakov & Naoki Wakamori, 2017. "Identifying the Degree of Collusion Under Proportional Reduction," Staff Working Papers 17-51, Bank of Canada.
    4. Moghadam, Hamed Markazi, 2021. "A nonparametric approach to evolutionary oligopoly games: An application to the crude oil industry," Economic Modelling, Elsevier, vol. 101(C).

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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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