Cournot competition

A simple theoretical model will help us understand how the two allocation methods differ. Let us take a set of N homogeneous firms competing under Cournot competition with a linear demand curve on the goods market. These firms choose an output and an abatement level in order to maximize their profit ... 

The following is a simple example of a differential game taken from Kamien and Schwartz (2000). Suppose two players indexed by 2 = 1,2 are engaged into production and sales of the same product. Firms choose production levels Ui t) at any moment of time and incur total cost Ci ui) = cui + The price in the market is determined as per Cournot competition. Typically, this would mean that p t) = a—Ui t)-U2 t), However, the twist in this problem is that if the production level is changed, price adjustments are not instantaneous. Namely, there is a parameter 5, referred to as the speed of price adjustment, so... 

A generalization of the basic model considers the case in which n symmetric manufacturers engage in Cournot competition in selling to the intermediaries and directly to consumers. The main conclusion is that the impact of adding direct sales is not sensitive to the assumption of a solitary upstream firm. 

Keywords Emissions trading Firm behaviour Market structure Competitiveness Grandfathering Cournot... 

The Cournot model is a standard oligopoly model, and it is often used in competition policy as a first approximation of how competition works (Martin, 1993). For our modelling purposes, the Cournot oligopoly model offered the best combination - faithful representation of market cost structure and behaviour, and flexibility to incorporate a mixture of profit-maximizing and sales-maximizing objectives - as well as tractable conversion into a spreadsheet modelling application. 

Kreps, D., Sheinkman, I, 1983. Quantity precommitment and Bertrand competition yield Cournot outcomes. Bell Journal of Economics 14, 326-337. 

The use of the Cournot model instead of other competition representations (Bertrand, Stackelberg, limit price, etc.) is not only justified by the support of the literature or its tractability, but also by the fact that it is compatible with the following quotations from cement manufacturers and analysts (Oxera, 2004) ... 

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