Prevolio
Game theoryClassroom · multi-user

Cournot Competition — Setting Output

Paired as two firms, you both choose how much to produce each round. Total output sets the market price, so output and price settle between the monopoly and perfectly-competitive outcomes — quantity competition keeps some market power that price competition destroys.

You’ll learn: See how quantity-competing firms land between monopoly and perfect competition — keeping some market power that price competition would erase.

Teacher guide

Students will learn to

  • Experience quantity competition as one of two firms choosing output each round.
  • See how each firm's output affects the market price for both.
  • Place the Cournot outcome between the monopoly and perfectly-competitive benchmarks.

Before the session — ask

  • If producing more pushed the price down for everyone, how much would you make?
  • How is choosing your output different from choosing your price?

After the session — discuss

  • Where did total output and price settle relative to monopoly and perfect competition?
  • Did firms overproduce and hurt their own profits?
  • Why does competing on quantity keep more market power than competing on price?

Timing

  • Briefing & pairing3–5 min
  • Five output rounds6–10 min
  • Reveal & discussion8–10 min

Run it with your class

Students join with a code or QR — no account needed. Teachers start a session from the dashboard.

Join with a codeFor teachers

What is Cournot competition?

Cournot competition models oligopoly where firms compete by choosing how much to produce rather than what price to charge. Each firm picks a quantity, the total output of all firms determines the market price (more output means a lower price), and each firm takes its rival's output as given when deciding its own. A firm's best response depends on how much it expects the other to make: if the rival produces a lot, the price is already low, so it holds back; if the rival produces little, it expands. Where these best responses meet is the Cournot equilibrium — a Nash equilibrium in quantities. The key result is that the outcome lands between the two extremes: firms produce more than a single monopolist would (so price is lower than monopoly) but less than perfect competition (so price stays above marginal cost). Quantity competition therefore preserves some market power and positive profit that price competition — Bertrand — would compete away. It's the classic model for industries with a few large producers, showing how strategic interaction over output, not price, shapes prices, quantities, and profits.

How the simulation shows it

Paired as two firms, each round you both choose how much to produce, and your combined output sets the market price. Adjusting your quantity in response to your rival's shows how the market settles between monopoly and perfect competition — quantity competition keeps some profit that a price war would destroy.

Common misconceptions

Frequently asked questions

What is Cournot competition?
A model of oligopoly where firms compete by choosing quantities. Total output sets the market price, and each firm picks its output taking its rivals' as given.
What is the Cournot equilibrium?
The Nash equilibrium in quantities: each firm produces its best response to the other's output, and neither wants to change given what the other is producing.
How does the outcome compare to monopoly and perfect competition?
It sits between them: firms produce more than a monopoly (so price is lower) but less than perfect competition (so price stays above marginal cost and profit is positive).
How is Cournot different from Bertrand?
Cournot firms compete on quantity and keep some market power and profit; Bertrand firms compete on price, which can drive the price to marginal cost and profit to zero.
Why do Cournot firms keep some market power?
Because each recognises that producing more lowers the price on all its units, so it restrains output. That restraint keeps the price above marginal cost, unlike a price war.