Non-collusive oligopoly:

Oligopoly can be of two types: non-collusive and collusive. In the non-collusive oligopoly, there is rivalry among the firms due to the interdependence. On the other hand, in collusive oligopoly the rival firms enter into a collusion to maximise joint profit by reducing the uncertainty due to rivalry.

Under non-collusive oligopoly each firm develops an expectation about what the other firms are is likely to do. This brings us to an important concept of "Conjectural Variation" (CV) of a firm. CV of i^th firm is defined as the reaction of the j^th firm, corresponding to a marginal adjustment in the ith firm's strategy variable as perceived by the ith firm. For instance, if output were the strategic variable, then the CV of the ith firm would be given by (δq_j/δq_i)- the amount of change in the output level that would be brought about by the j^th firm for an additional change in the output level of the i^th firm, as perceived by the i^th firm. Depending on CV, we can have different models under oligopoly. For instance, in the Cournot Duopoly model, CV of each firm is zero because each of the duopolists assumes that the other would stick to its previous period's output level. In the Stackelberg model, there is a leader and a follower. Here the leader knows what the follower is likely to do; hence, the CV of the leader is positive.

In the following sections, we would see how equilibrium is arrived at in the important models of non-collusive oligopoly-Cournot model of duopoly, Bertrand model, Stackelberg model, Edgeworth, Chamberlin and the Kinked Demand curve analysis of Sweezy. To do this we would make use of the concept of reaction functions (RF). A reaction function of a firm gives the best response of the firm, given the decision taken by the rival firm.