COURNOT DUOPOLY WITH 2 PRODUCTION PERIODS AND COST DIFFERENTIALS

Saloner (1987) analyzes a Cournot model with two production periods before the market clears. If costs do not vary across periods, any point on the outer envelope of the reaction functions between the firms' Stackelberg outputs is attainable with a subgame perfect Nash equilibrium (SPNE). Saloner's analysis is generalized by allowing for cost differences across periods. The continuum of equilibria vanishes for any cost differential. If costs fall slightly over time there are multiple "leader-follower" equilibria. Otherwise the model generates a unique SPNE where both firms produce their single-period Cournot outputs, in the period when production is cheaper. © 1991.