What is Cournot competition in simple terms?

A few firms selling the same product each decide how much to produce while anticipating how much their rivals will produce. The resulting price is lower than a monopoly's but higher than under perfect competition.

How does it differ from Bertrand competition?

In Cournot competition firms choose quantities; in Bertrand competition they choose prices. The big difference is that in the Bertrand model, price can fall all the way to cost with only two firms.

Cournot Competition

📈 Economics By CampusDown Wiki Editorial Team Last updated October 27, 2026 Views 1

Cournot competition is an oligopoly model introduced in 1838 by the French mathematician and economist Antoine Augustin Cournot. Firms selling a homogeneous product each choose their output simultaneously, taking rivals' output as given. The resulting equilibrium is regarded as the prototype of the Nash equilibrium, with a price below the monopoly level but above the competitive level.

Contents

1. Cournot's duopoly model
2. The Bertrand critique and alternatives
3. Policy applications and experiments
4. FAQ
5. References

Cournot's duopoly model

Cournot (1838) used the example of two owners of mineral springs selling water in the same market and assumed that each sets the profit-maximizing output taking the other's supply as given. The best output in response to a rival's output is the reaction function, and the equilibrium lies where the two reaction functions cross. In equilibrium no firm can gain by changing its output alone, which makes it the prototype of the Nash equilibrium that Nash (1950) generalized, hence the name Cournot–Nash equilibrium. Total output exceeds the monopoly level but falls short of the competitive level, and as the number of firms grows, price converges to marginal cost.

The Bertrand critique and alternatives

Bertrand (1883) objected that if firms set prices rather than quantities, price falls to marginal cost with just two firms, a result known as the Bertrand paradox. Stackelberg (1934) proposed a leader–follower model in which one firm commits to output first. Kreps and Scheinkman (1983) proved that if firms first choose capacity and then compete on price, the outcome coincides with the Cournot equilibrium, justifying the Cournot model in industries where capacity constraints matter. Novshek (1985) set out conditions for existence of equilibrium, and Shapiro (1989), Tirole (1988) and Vives (1999) established the Cournot model as a standard framework in oligopoly theory.

Policy applications and experiments

Salant, Switzer and Reynolds (1983) showed a merger paradox: in a Cournot market, a horizontal merger among some firms can actually reduce the merging firms' profits. Farrell and Shapiro (1990) built a framework for analyzing how mergers affect prices and welfare. Brander and Spencer (1985) developed strategic trade policy theory, showing that in international markets with Cournot competition, export subsidies can raise a home firm's market share. In experiments by Huck, Normann and Oechssler (2004), duopolies sometimes came close to collusion, while markets with four or more firms produced outcomes at or beyond the competitive Cournot level.

FAQ

What is Cournot competition in simple terms?: A few firms selling the same product each decide how much to produce while anticipating how much their rivals will produce. The resulting price is lower than a monopoly's but higher than under perfect competition.
How does it differ from Bertrand competition?: In Cournot competition firms choose quantities; in Bertrand competition they choose prices. The big difference is that in the Bertrand model, price can fall all the way to cost with only two firms.

Sources reviewed: 2026-10-26

References

Cournot, A. A. (1838). Recherches sur les principes mathématiques de la théorie des richesses. Paris: Hachette.
Bertrand, J. (1883). Review of Walras's Théorie mathématique de la richesse sociale and Cournot's Recherches. Journal des Savants, 67, 499–508.
Stackelberg, H. von (1934). Marktform und Gleichgewicht. Vienna: Springer.
Nash, J. F. (1950). Equilibrium points in n-person games. Proceedings of the National Academy of Sciences, 36(1), 48–49.
Kreps, D. M., & Scheinkman, J. A. (1983). Quantity precommitment and Bertrand competition yield Cournot outcomes. Bell Journal of Economics, 14(2), 326–337.
Novshek, W. (1985). On the existence of Cournot equilibrium. Review of Economic Studies, 52(1), 85–98.
Shapiro, C. (1989). Theories of oligopoly behavior. In R. Schmalensee & R. Willig (Eds.), Handbook of Industrial Organization (Vol. 1, pp. 329–414). Amsterdam: North-Holland.
Tirole, J. (1988). The Theory of Industrial Organization. Cambridge, MA: MIT Press.
Salant, S. W., Switzer, S., & Reynolds, R. J. (1983). Losses from horizontal merger: The effects of an exogenous change in industry structure on Cournot–Nash equilibrium. Quarterly Journal of Economics, 98(2), 185–199.
Farrell, J., & Shapiro, C. (1990). Horizontal mergers: An equilibrium analysis. American Economic Review, 80(1), 107–126.
Brander, J. A., & Spencer, B. J. (1985). Export subsidies and international market share rivalry. Journal of International Economics, 18(1–2), 83–100.
Huck, S., Normann, H.-T., & Oechssler, J. (2004). Two are few and four are many: Number effects in experimental oligopolies. Journal of Economic Behavior & Organization, 53(4), 435–446.
Vives, X. (1999). Oligopoly Pricing: Old Ideas and New Tools. Cambridge, MA: MIT Press.

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This article was last updated on October 27, 2026. It is based on widely recognized original works and textbooks; when citing it in a paper, please check the original sources listed in the references.