Cournot's model of oligopoly

• There are two sellers in the market
• We assume they profit maximise
• Entry is blocked
• Firms produce homogeneous products
• P = a - Q

  (Inverse demand)
• A is the size of the market
• Q is the total output in the market
• A must be greater than 0
• If the market price is equal to a then Q is 0
• Choke price
• Courtnot -Nash equilibrium

  One firm must produce an output based on the assumption of the production of firm B
• The residual demand curve is a firm's demand curve given the output of its rivals
• Effectively it is the market demand than its rival has not supplied.
• Firms A 's residual demand curve depends on Firm B's output
• The more Firm B produces , the closer Firm A's residual demand to its origin
• If firm b output is zero . Firms A's best response is to produce the monopmonopoly-level
• The Nash Equilibrium of the Courtnot model is given by the points where the two firms' best response functions

  intersect

  No player is going to deviate from that point to get a higher payoff
• Each player must be playing a best response against a guess of how other players will play
• The guess must be correct
• In the Cournot model of oligopoly, the total output produced by the duopolists is more than the total output of a monopolist