Noncooperative Oligopoly in Markets with a Continuum of Traders: A Limit Theorem à la Cournot∗

In this paper, we consider an exchange economy à la Shitovitz (1973), with atoms and an atomless set. We associate with it a strategic market game of the kind first proposed by Lloyd S. Shapley and known as the Shapley window model. We analyze the relationship between the set of the Cournot-Nash equilibrium allocations of the strategic market game and the Walras equilibrium allocations of the exchange economy with which it is associated. We show, with an example, that even when atoms are countably infinite, any Cournot-Nash equilibrium allocation of the game is not a Walras equilibrium of the underlying exchange economy. Accordingly, in the original spirit of Cournot (1838), we partially replicate the mixed exchange economy by increasing the number of atoms, without affecting the atomless part, and ensuring that the measure space of agents remains finite. We show that any sequence of Cournot-Nash equilibrium allocations of the strategic market games associated with the partially replicated exchange economies approximates a Walras equilibrium allocation of the original exchange economy. Journal of Economic Literature Classification Numbers: C72, D51. ∗Francesca Busetto and Giulio Codognato gratefully acknowledge financial support from MIUR (PRIN 20103S5RN3). †Dipartimento di Scienze Economiche e Statistiche, Università degli Studi di Udine, Via Tomadini 30, 33100 Udine, Italy. ‡Dipartimento di Scienze Economiche e Statistiche, Università degli Studi di Udine, Via Tomadini 30, 33100 Udine, Italy, and EconomiX, Université de Paris Ouest Nanterre la Défense, 200 Avenue de la République, 92001 Nanterre Cedex, France. §Adam Smith Business School, University of Glasgow, Main Building, Glasgow, G128QQ, United Kingdom.