Non-Monotonicity of Equilibrium Price

Abstract

This paper examines the implications for equilibrium price of a shift in demand. First, I consider two static Cournot oligopoly models with linear demand, linear costs, and a finite number of firms, and I prove strong non-monotonicity of any equilibrium price. In a stochastically indefinite horizon simultaneous moves Cournot oligopoly model with a countable number of firms, with the discount factors and the demand parameters following general stochastic processes, I prove that for a path which follows a stationary function of the demand parameter and which is sustainable in a strategy profile that is efficient among the set of perfect equilibrium strategy profiles, any equilibrium price is strongly non-monotonic.