On the Dominance Solvability of Large Cournot Models
Games and Economic Behavior p. 297- 321
We consider Cournot's model of oligopolistic competition in a market for a homogeneous good. We seek conditions under which the oligopolists' game is dominance solvable and hence the Cournot equilibrium is the only outcome that survives iterated deletion of dominated strategies. We focus on “large” oligopolies, whereby we define an oligopoly to be “large” if both the demand and the supply side are replicated more than a certain finite number of times. We show that “large” Cournot oligopolies are dominance solvable if and only if the equilibrium of the approximated perfectly competitive market is globally stable under cobweb dynamics.