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Cournot Oligopoly and the Theory of Supermodular Games

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Abstract

We reconsider the Cournot oligopoly problem in light of the theory of supermodular games. Invoking the recent ordinal version of this theory proposed by Milgrom Shannon (1991), we generalize Novshek's (1985) existence result, give an extension of a classical existence result under symmetry, and provide conditions making a Cournot oligopoly into a log-supermodular game (with the natural order on the action sets). We also provide extensive and precise insight as to why decreasing best-responses are widely regarded as being "typical", for the Cournot model with production costs. Several illustrative examples are provided.

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