What is Cournot Competition?
Cournot Competition is an economic model in which businesses compete on the basis of the amount of product they produce. This model is named after Antoine Augustin Cournot, which was inspired in 1838 after watching the competition in the spring water industry, in which there were only two competitors. The Cournot model is usually observed only if there is a monopoly or oligopol. The general prerequisite for the model is that oligopols will have higher production and lower prices than monopolies, but lower production and higher prices than perfect competition.
The foundations of this model require that the competition be concentrated around the amount of specific goods produced. In general, when more good is formed, its price decreases. This is not necessarily with this model, because monopoly or duopoly must not face pressure from competition to lower prices. Prices have declined only if the production exceeds the demand, so the company is not pre -saled and it will encourage competitors to do the same. This makes TrH for consumers inefficient and not favorable.
In the Cournot Competition, products are homogeneous, are not customizable and prices are set by the market. The goods in this model can be sold and delivered immediately for the price of the set market. The types of products that are most advantageous for this model of the competition are agricultural such as rice, wheat and cotton.
The use of the Cournot Competition is generally found in situations where businesses want to maximize profits based on the market level. The purpose is to prevent excessive stretching of the market so that prices do not fit and ensure that enough products are produced to capture the maximum amount of income. Businesses will use the overall level of output on the market and measure it against the demand for calculation How much it should produce it. Different businesses will act as a monopoly by taking the same strategy.
inefficiency inIt provides in the industry where there is competition of Cournot. The equilibrium price is higher than the limit cost of production, so consumers pay more than in a perfect competitive situation. There are also surpluses because there is no pressure to reduce production. Cartels or precipitation can also occur in industries with the Cournot competition. Businesses have motivation to increase prices or reduce production to increase profit. Cartles are illegal in most countries, but informal agreements are often concluded.