Two-Stage Cournot Oligopolies with Industry-wide Externalities

Abstract

A two-stage Cournot oligopoly with cost functions involving externalities is formulated. A unique subgame perfect Cournot-Nash Equilibrium is proven to exist under a set of reasonable assumptions. The existence proof consists of solving two fixed-point problems for the industry output. The perfect equilibrium is then compared with one-shot Cournot oligopoly equilibrium. The effects of entry are also analyzed. Our result will be illustrated using linear cost and demand functions.