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Reconsidering Cournot: The Cournot Equilibrium is Consistent

  • Andrew F. Daughety

This article uses an infinite-regress model of firm-level decisions to find a rational expectations equilibrium for a duopoly and to relate concepts of conjectural variations and consistency to the Cournot equilibrium. The model derives a conjectural variation instead of assuming it. In particular, the Cournot equilibrium is shown to be consistent in the usual sense of the literature. The conflict between notions of consistent conjectures and the Cournot equilibrium results from a compounding problem inherent in the earlier models. We extend these results to the n-firm problem. Alternatively, the article can be viewed as providing a purely static model that generates the Cournot equilibrium without reference to conjectures or quasi dynamics.

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Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 16 (1985)
Issue (Month): 3 (Autumn)
Pages: 368-379

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Handle: RePEc:rje:randje:v:16:y:1985:i:autumn:p:368-379
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