Conjectures in Cournot Duopoly under Cost Uncertainty

Abstract

This paper presents a Cournot duopoly model based on a condition

when firms are facing cost uncertainty under risk neutrality

and risk aversion. Each firm conjectures about the rivals output

level, and its cost function is assumed to be unknown to its rival.

The Cournot model shows that the expected utility maximizing firms,

under risk aversion, show different behaviors from the expected

profit maximizing firms. This implies that each firm can increase or

decrease its output, which depends on the interaction between both

firms under cost uncertainty, assuming that both firms are riskaverse.