Editing Game theory (section)

=== Cournot Competition ===
{{main|Cournot competition}}
The Cournot competition model involves players choosing quantity of a homogenous product to produce independently and simultaneously, where [[marginal cost]] can be different for each firm and the firm's payoff is profit. The production costs are public information and the firm aims to find their profit-maximizing quantity based on what they believe the other firm will produce and behave like monopolies. In this game firms want to produce at the monopoly quantity but there is a high incentive to deviate and produce more, which decreases the market-clearing price.<ref name=":2">{{Cite book|last=Gibbons|first=Robert|title=Game Theory for Applied Economists|publisher=Princeton University Press|year=1992|isbn=0-691-04308-6|location=Princeton, New Jersey|pages=14–17}}</ref> For example, firms may be tempted to deviate from the monopoly quantity if there is a low monopoly quantity and high price, with the aim of increasing production to maximize  profit.<ref name=":2" /> However this option does not provide the highest payoff, as a firm's ability to maximize profits depends on its market share and the elasticity of the market demand.<ref>{{cite web|date=18 April 2013|title=Cournot (Nash) Equilibrium|url=https://stats.oecd.org/glossary/detail.asp?ID=3183|access-date=20 April 2021|website=OECD|archive-date=23 May 2021|archive-url=https://web.archive.org/web/20210523222914/https://stats.oecd.org/glossary/detail.asp?ID=3183|url-status=live}}</ref> The Cournot equilibrium is reached when each firm operates on their reaction function with no incentive to deviate, as they have the best response based on the other firms output.<ref name=":2" /> Within the game, firms reach the Nash equilibrium when the Cournot equilibrium is achieved.   
[[File:Cournot Duopoly Nash equilibrium.png|thumb|Equilibrium for Cournot quantity competition]]