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Oligopoly and stability

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  • Puu, T.
  • Panchuk, A.

Abstract

In this paper, the so called Theocharis–Cournot problem is reconsidered. It concerns the relation between oligopoly and perfect competition, in particular the destabilization of Cournot equilibrium when the number of competitors increases. Using a CES production function where one input, capital, is fixed during periods of investment, a mixed short/long run market dynamics is set up. In the short run, with capital fixed, there is a capacity limit for production possibilities, whereas, at moments of capital renewal there are constant returns to scale. In this setting the local stability of Cournot equilibrium is reconsidered. It is demonstrated that if no more than two firms reinvest in the same time period, and the wage rate is not too high, then the Cournot equilibrium is stable.

Suggested Citation

  • Puu, T. & Panchuk, A., 2009. "Oligopoly and stability," Chaos, Solitons & Fractals, Elsevier, vol. 41(5), pages 2505-2516.
    • Handle: RePEc:eee:chsofr:v:41:y:2009:i:5:p:2505-2516
    DOI: 10.1016/j.chaos.2008.09.037
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    Cited by:

    1. Luca Gori & Nicolò Pecora & Mauro Sodini, 2017. "Market share delegation in a nonlinear duopoly with quantity competition: the role of dynamic entry barriers," Journal of Evolutionary Economics, Springer, vol. 27(5), pages 905-931, November.
    2. Yang, Xuenan & Peng, Yu & Xiao, Yue & Wu, Xue, 2019. "Nonlinear dynamics of a duopoly Stackelberg game with marginal costs," Chaos, Solitons & Fractals, Elsevier, vol. 123(C), pages 185-191.
    3. Jose S. Cánovas & Anastasiia Panchuk & Tonu Puu, 2015. "Role of reinvestment in a competitive market," Gecomplexity Discussion Paper Series 12, Action IS1104 "The EU in the new complex geography of economic systems: models, tools and policy evaluation", revised Apr 2015.
    4. Cánovas, Jose S. & Panchuk, Anastasiia & Puu, Tönu, 2015. "Asymptotic dynamics of a piecewise smooth map modelling a competitive market," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 117(C), pages 20-38.
    5. Puu, Tonu & Tramontana, Fabio, 2019. "Can Bertrand and Cournot oligopolies be combined?," Chaos, Solitons & Fractals, Elsevier, vol. 125(C), pages 97-107.
    6. Panchuk, A. & Puu, T., 2015. "Oligopoly model with recurrent renewal of capital revisited," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 108(C), pages 119-128.

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