Effect of Overconfidence on Cournot Competition in the Presence of Yield Uncertainty

Xujin Pu, Delong Jin and Guanghua Han

Managerial and Decision Economics, 2017, vol. 38, issue 3, 382-393

Abstract: This study investigates the effects of overconfidence on a Cournot competition subject to yield uncertainty. We consider one of two firms to be overconfident, whereas the other is completely rational and derive the Nash equilibrium to compare with that when both firms are completely rational. Through this comparison and analysis, we establish that (i) the relationship between a firm's overconfidence and the likelihood of that firm developing a monopoly in the market is positive; (ii) a rational firm always suffers a loss because of its competitor's overconfidence in a Cournot competition; and (iii) an overconfident firm does not benefit constantly from its overconfidence, although overconfidence results in permanent, increased, and more aggressive market sharing in competitions. Copyright © 2016 John Wiley & Sons, Ltd.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:38:y:2017:i:3:p:382-393

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