How can equilibrium be formed in a market where two producers independently and simultaneously set their level of production? This is the question answered by Cournot's duopoly model.
In this video, we show that the optimal quantity to be produced by each competitor is determined by the quantity produced by the other party and this, through a function, called reaction or best response.
This balance can be determined instantly by both producers if the information is perfect. In reality, the discovery of balance will be rather gradual. This equilibrium is a Nash equilibrium
in game theory. After generalization of this system to N producers, we show what is the level of production, price and profit on such a market when N tends to infinity.