Cournot Oligopoly Model

Reaction functions and equilibrium analysis for horizontal merger review

Reaction Function Diagram Best response functions in quantity space
Firm 1 Reaction Function
Firm 2 Reaction Function
Merged Firm Output
Firm Parameters
● Firm 1 (Acquirer) MC = $20
● Firm 2 (Target) MC = $25
Simulate Merger
Market Outcomes
$50
Market Price
50
Total Output
$625
Consumer Surplus
5000
HHI
Model Details
Inverse Demand: P = 100 - Q = 100 - (q₁ + q₂)
Firm i's Reaction Function: qᵢ = (100 - cᵢ - qⱼ) / 2
Cournot Equilibrium: qᵢ* = (100 - 2cᵢ + cⱼ) / 3