A simple model of imperfect competition, where 4 are few and 6 are many

Abstract

The theory presented in this paper investigates the connection between the number of competitors and the tendency to cooperate within the context of a symmetric Cournot model with linear cost and demand, supplemented by specific institutional assumptions about the possibilities of cooperation. Cooperative forms of behavior are modelled as moves in a non-cooperative game. The proposition that few suppliers will maximize their joint profits whereas many suppliers are likely to behave non-cooperatively does not appear as an assumption but as a conclusion of the theory. For the simple model analyzed in this paper a definite answer can be given to the question where a "small group" of competitors ends and a "large group" begins: 5 is the dividing line between "few" and "many".