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The empirical content of Cournot competition

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  • Bram De Rock
  • Laurens Cherchye
  • Thomas Demuynck

Abstract

We consider the testable implications of the Cournot model of market competition. Our approach is nonparametric in the sense 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. We also investigate empirical issues (measurement error and omitted variables) related to bringing our testable restrictions to data.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/151678.

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Date of creation: 2013
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Publication status: Published in: Journal of economic theory (2013) n° 148,p.195-235
Handle: RePEc:ulb:ulbeco:2013/151678

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