Oligopoly Theory

Oligopoly theory began with Cournot, more than 140 years ago. Judging from many intermediate textbooks on price theory, one might think it ended with him too. A purpose of this book is to demonstrate fully and clearly that much interesting and useful progress has been made, particularly in the last quarter century, in developing a deeper and fuller understanding of oligopoly theory. The recent advances stem from two main sources. One is game theory. Cournot's oligopoly theory anticipates fundamental developments in game theory, particularly the noncooperative branch, and the fuller flowering of this new discipline has brought fresh insight back to oligopoly, as it has to other fields of economics. The second source is the recent work in dynamic economics. Many processes in economics would be better understood if they were modeled as many-period, or dynamic, phenomena. Capital theory led the way in dynamic economics, along with dynamic programming in operations research, and as the reader can see from Chapters 5 through 8, oligopoly theory has benefited from the development of dynamic models also.

I can offer the reader two reasons why oligopoly theory might be interesting. First, the subject is fascinating on its own, and the markets it depicts represent a considerable portion, perhaps a large majority, of markets in modern industrial nations. A person combining an interest in economic phenomena and an interest in the first principles of how things work will naturally be interested in theoretical economics, including oligopoly.