Open AccessLocal Stability of Cournot Equilibrium as the Number of Firms Increases
Author(s) -
Adyda Binti Ibrahim,
Nerda Zura Zaibidi,
Azizan Saaban
Publication year - 2021
Publication title -
iraqi journal of science
Language(s) - English
Resource type - Journals
eISSN - 2312-1637
pISSN - 0067-2904
DOI - 10.24996/ijs.2021.62.3.27
Subject(s) - cournot competition , monopolistic competition , economics , stability (learning theory) , generalization , bounded rationality , constant (computer programming) , mathematical economics , bounded function , microeconomics , bertrand competition , oligopoly , mathematics , monopoly , computer science , mathematical analysis , machine learning , programming language
In this paper, a Cournot oligopoly with isoelastic demand function and constant marginal cost is considered. The local stability conditions of the Cournot equilibrium are determined for four models with different decision mechanisms. In the first model, firms adjust their outputs using the best reply response with naive expectations. The second model is a generalization of the first one, where firms have adaptive expectations. Meanwhile, the third and fourth models adopt the bounded rationality and local monopolistic approximation, respectively. The results show that, in the case of identical firms, the Cournot equilibrium is always stable when the firms adopt the local monopolistic approximation mechanism.