The stability of a Cournot oligopoly: the effects of adaptive expectations

It is crucial to characterize the long-term behaviour for oligopolistic firms by the analysis of asymptotic stability of the equilibrium. Convergent trajectories are usually preferred in the traditional market since unstable orbits may make the behaviour unpredictable. Under some fairly general and reasonable assumptions in an oligopolistic industry, a Cournot oligopoly model is constructed where each firm maximizes its profit in consideration of adaptive expectations with respect to its rivals' choices. We finally arrive at the conclusion that the introduction of adaptive expectations can contribute largely to the convergence to Nash equilibrium, making the long-run market behaviour more predictable.