Cournot Oligopoly – Standard Case

p = a – bq
Individual level Ci (qi ) = ciqi ; i = 1, . . . , N
Nash equilibrium:
p = (a + c1 + c2 + · · ·+cN )/(N + 1)
Counterintuitive as cost passing by firms
Let cost saving by one firm = Δci with higher market share are expected
⇒ Cost saving passed on to price = Δci /(N + 1) – Same for all firms to have greater impact on price.

Therefore, pass on rate is independent of initial marginal costs and the market share

  Consider a scenario where one firm has 99% market share and 10 fringe firms sharing the remaining percent
Practically the same as a monopoly. Yet monopoly passes on and this firm passes on of the saving.

Fringe competitors are small because they have costs very close to equilibrium price
Cost saving by dominant → reduction in eq. price → forced out of market → ratio eventually becomes ½

Industry level Average cost saving across all firms in the industry Higher than in case of
cost saving pass on ratio = N /(N + 1) a monopoly