Journal Article

Cournot Games with Limited Demand: From Multiple Equilibria to Stochastic Equilibrium

Polak Ido, Privault Nicolas

2020

Overview

We construct Cournot games with limited demand, resulting into capped sales volumes according to the respective production shares of the players. We show that such games admit three distinct equilibrium regimes, including an intermediate regime that allows for a range of possible equilibria. When information on demand is modeled by a delayed diffusion process, we also show that this intermediate regime collapses to a single equilibrium while the other regimes approximate the deterministic setting as the delay tends to zero. Moreover, as the delay approaches zero, the unique equilibrium achieved in the stochastic case provides a way to select a natural equilibrium within the range observed in the no lag setting. Numerical illustrations are presented when demand is modeled by an Ornstein–Uhlenbeck process and price is an affine function of output.

• Publisher: Springer Nature B.V
• Subject: Delay / Demand / Economic models / Equilibrium / Game theory / Mathematical models / Response time