The Empirical Content of Cournot Competition

KUL Dept. of Economics Discussion Paper No. 11.11

21 Pages Posted: 8 Jun 2011  

L. Cherchye

KU Leuven; Erasmus Research Institute of Management (ERIM)

Thomas Demuynck

Catholic University of Leuven (KUL) - Campus Kortrijk (KULAK) - Subfaculty of Economics and Applied Economics

Bram De Rock

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Date Written: May 10, 2011

Abstract

We consider the testable implications of the Cournot model of market competition. Our approach is nonparametric in that we abstain from imposing any functional specification on market demand and firm cost functions. We derive necessary and sufficient conditions for (reduced form) equilibrium market price and quantity functions to be consistent with the Cournot model. In addition, we present identification results for the corresponding inverse market demand function and the firm cost functions. Finally, we use our approach to derive testable restrictions for the models of perfect competition, collusion and conjectural variations. This identifies the conditions under which these different models are empirically distinguishable from the Cournot model.

Keywords: Cournot competition, testable implications, nonparametric

JEL Classification: D21, D22, D24

Suggested Citation

Cherchye, L. and Demuynck, Thomas and De Rock, Bram, The Empirical Content of Cournot Competition (May 10, 2011). KUL Dept. of Economics Discussion Paper No. 11.11. Available at SSRN: https://ssrn.com/abstract=1859230 or http://dx.doi.org/10.2139/ssrn.1859230

Laurens Cherchye (Contact Author)

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant
Belgium

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Thomas Demuynck

Catholic University of Leuven (KUL) - Campus Kortrijk (KULAK) - Subfaculty of Economics and Applied Economics ( email )

Etienne Sabbelaan 53
Kortrijk, B-8500
Belgium

Bram De Rock

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Av. F. D. Roosevelt, 50
CP 114
Brussels, B-1050
Belgium

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