Risky rivals: how uniform marginal cost uncertainty transforms Cournot duopoly equilibria

This paper studies how uncertainty about production costs shapes competition between two quantity-setting firms in a Cournot duopoly when managers care not only about profit but also about risk. Each firm faces the same type of uncertainty about its marginal cost, modeled with a uniform distribution, and maximizes a mean–variance objective that combines expected profit and its variability. Within a standard game-theoretic framework, we compare equilibria under cost certainty and uncertainty and examine how risk attitudes feed into output choices and profitability. Our results indicate that uniform marginal cost uncertainty, filtered through a mean–variance criterion, can either soften or intensify competition, depending on how strongly firms dislike risk. This perspective reveals that even a simple, widely used representation of risk can generate rich and sometimes counterintuitive effects on firms’ strategic behavior and market outcomes in oligopolistic industries.