Price formation in heterogeneous oligopoly

Conclusion An equilibrium price vector has been defined and its existence and function in static price formation in cases of heterogeneous oligopoly has been established. Hitherto, authors have been misled, we think, by misinterpreting the role of reaction functions, which are central to our argument. After defining and proving the existence and uniqueness of an equilibrium price vector, it is possible to construct a generalization of the wellknown equilibrium concept of the Nash-Cournot game solution. It has previously been thought that the restriction to the Cournot solution is one of the main drawbacks to using game theoretical solutions to the problem of oligopoly. We have developed a generalization of the Nash solution in order to deal with a type of reaction hypothesis which cannot be expressed in terms of the Cournot reaction function. The new set of reaction functions here introduced demonstrate conclusively that the so-called identity on a Nash and a Cournot equilibrium is only of a formal character.We would like to thank F. Delbaen, R. A. Hirschfeld and K. Okuguchi for useful comments on an earlier draft of this paper.