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ECONOMICS • OLIGOPOLY

Cournot Duopoly, Strategic Quantity Competition

Simulate Cournot duopoly quantity competition. Watch two firms repeatedly best respond to each other and see how marginal costs change quantities, price and profits.

● COURNOT DUOPOLYFirm 1 best response ↔ Firm 2 best response
Firm 1 quantity
Firm 2 quantity
Market price
Total profit

Reasoning inspector

live model state
Firm 1 quantity—
Firm 2 quantity—
Market price—
Firm 1 profit—
Firm 2 profit—
Equilibrium total quantity—

Experiment with the mechanism

Cournot competition models firms that choose quantities while anticipating that total market output determines price. Each firm's best quantity depends on what it expects the rival to produce, so the equilibrium is strategic rather than purely mechanical.

LEARN WITH THE SIMULATION

Understand Cournot Duopoly, Strategic Quantity Competition by experimenting.

START HERE

A Cournot duopoly has two firms that compete by choosing quantities. Each firm understands that total output affects the market price, so its best quantity depends on what the rival produces. The equilibrium occurs when both quantities are best responses at the same time.

BUILD THE IDEA

What you should understand first

  • Understand why each firm's optimal output depends on the rival's quantity.
  • Trace repeated best responses toward the Cournot equilibrium.
  • Explain how a cost advantage changes both firms' equilibrium quantities and the market price.

TRY IT YOURSELF

What happens when Firm 1 becomes more costly while Firm 2's cost stays unchanged?

  1. Record both equilibrium quantities, price and profits at equal marginal costs.
  2. Raise only Firm 1's marginal cost.
  3. Replay the best-response rounds.
  4. Compare Firm 1 output, Firm 2 output, total quantity, market price and profits.
Read the visual:

The higher-cost firm tends to produce less. Its rival responds by producing more, but usually not enough to fully replace the lost output. Total market quantity falls and price rises in the standard linear Cournot model.

WHY IT WORKS 01

Why one firm's output changes the other's incentive

Market price depends on total output, Q1 + Q2. If Firm 2 produces more, the market price is lower for every unit Firm 1 sells. Firm 1 therefore faces a weaker incentive to produce a large quantity. This strategic link creates downward-sloping best-response relationships: more output by one firm usually leads to less optimal output by the other.

WHY IT WORKS 02

Cournot sits between monopoly and perfect competition

With identical linear costs, total Cournot output is typically greater than monopoly output but lower than the competitive benchmark. The resulting price is therefore usually below a monopoly price but above marginal cost. Adding more symmetric Cournot competitors pushes the outcome toward the competitive quantity because each individual firm controls a smaller share of total market output.

WHY IT WORKS 03

Cost asymmetry redistributes market share

When one firm's marginal cost rises, producing each unit becomes less attractive for that firm. Its best-response curve shifts inward. The rival gains strategic room to expand, but its expansion lowers price and therefore limits how far it wants to go. The final equilibrium reallocates quantity toward the lower-cost firm while often reducing total industry output.

DO NOT MIX THESE UP

Common misconception

Cournot firms do not literally take turns changing output forever in the real world. The playback is a learning device for visualizing best responses. The equilibrium concept itself is simultaneous: each firm's chosen quantity must already be optimal given the other firm's quantity.

PRACTICE CHALLENGE

Can Firm 2 gain output when Firm 1 becomes less efficient, yet total industry output still fall?

  • Start with equal marginal costs.
  • Raise only Firm 1's marginal cost.
  • Replay until the quantities stabilize.
  • Compare Firm 2's gain in output with Firm 1's reduction and explain the price change.
Reveal the reasoning

Yes. Firm 2 has an incentive to expand when Firm 1 retreats, but the expansion is normally smaller than Firm 1's reduction because extra output lowers market price. The lower-cost rival gains market share while total industry quantity falls, which raises the equilibrium price in this simplified Cournot model.

MODEL BOUNDARIES

What this simulation assumes

Every simulation simplifies reality or a mathematical system. These are the assumptions and limits to keep in mind while interpreting the results.

Model assumptions

  • Two firms choose quantities under linear inverse demand.
  • Each firm has constant marginal cost and no fixed cost in the strategic calculation.
  • The playback uses repeated pure best responses to visualize convergence.

Model limitations

  • Real oligopolies may compete in prices, quality, capacity, advertising or repeated relationships.
  • Repeated best-response dynamics are a teaching device and are not required by the static Cournot equilibrium concept.

CONNECT IT

Where this matters

  • Oligopoly
  • Industrial organization
  • Strategic production decisions
  • Competition policy

WORDS THAT MATTER

Key vocabulary

Duopoly
A market with two strategic firms.
Best response
The quantity that maximizes a firm's profit for a given rival quantity.
Cournot equilibrium
A pair of quantities where each firm is choosing a best response to the other.
Residual demand
The part of market demand left for one firm after accounting for the rival's quantity.