Local Stability of Cournot Equilibrium as the Number of Firms Increases

  • Adyda Ibrahim Department of Mathematics & Statistics,
  • Nerda Zura Zaibidi Department of Decision Science School of Quantitative Sciences, UUM College of Arts and Sciences, Universiti Utara Malaysia, 06010 Sintok, Kedah, Malaysia.
  • Azizan Saaban Department of Mathematics & Statistics,
Keywords: Cournot oligopoly, Isoelastic demand function, Local stability

Abstract

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.

Published
2021-03-30
How to Cite
Adyda Ibrahim, Nerda Zura Zaibidi, & Azizan Saaban. (2021). Local Stability of Cournot Equilibrium as the Number of Firms Increases. Iraqi Journal of Science, 62(3), 972-980. https://doi.org/10.24996/ijs.2021.62.3.27
Section
Mathematics