Cournot Competition in Networked Markets
The paper considers competition among firms that produce a homogeneous good in a networked environment. A bipartite graph determines which subset of markets a firm can supply to. Firms compete in Cournot and decide how to allocate their output to the markets they are connected to. We provide a characterization of the production quantities at the unique equilibrium of the resulting game for any given network. We identify a novel connection between the equilibrium outcome and supply paths in the underlying network structure. We then proceed to study the impact of changes in the competition structure, e.g., due to a firm expanding into a new market or two firms merging, on firms’ profits and consumer surplus.