The escape from conjectural variations: the consistency condition in duopoly theory from Bowley to Fellner Nicola Giocoli* The paper covers the 1924–1949 debate on the conjectural variations approach to duopoly theory and focuses on the evolution of economists’ views about the imposition of a consistency condition on the firms’ conjectures. The main point is that, although the consistency condition entailed a notion of interactive equilibrium that resembled the modern correct conjectures equi- librium, most neoclassical economists of the time refused to apply it because of the excessive requirements it imposed upon the firms’ forecasting abilities, and because of its failure to encompass an explanation of the equilibrating process. Key words: Duopoly, Conjectural variations, Cournot model, Stackelberg model, Consistent conjectures. JEL classifications: B21, D43 1. Introduction This paper covers the debate on the conjectural variations approach to duopolistic competition in the period from 1924 to 1949. The focus is on the evolution of economists’ views about the imposition of a consistency condition upon firms’ conjectures in order to obtain a determinate solution to the duopoly model. The point that I wish to establish is that, although the consistency condition brought to duopoly theory a notion of interactive equilibrium that—looked at in retrospect—closely resembled the modern game-theoretic idea of a correct conjectures equilibrium, most neoclassical economists working in the period under scrutiny refused to apply such a notion because of the excessive requirements it imposed upon firms’ forecasting abilities, as well as its failure to encompass an explanation of the process leading to equilibrium itself. Quite the contrary, these economists preferred to avoid any kind of Manuscript received 25 November 2002; final version received 5 April 2004. Address for correspondence: Department of Economics, University of Pisa, Via Curtatone e Montanara 15, 56126 Pisa, Italy; email: giocoli@mail.jus.unipi.it. * University of Pisa. While bearing full responsibility for any remaining mistake, I wish to thank Marco Dardi, Matthias Klaes, Hansjo ¨rg Klausinger, Maria Cristina Marcuzzo, Salvatore Rizzello, Annalisa Rosselli, Neri Salvadori and two anonymous referees for their useful comments and suggestions. The financial support of MIUR PRIN 2002 ‘Mathematics in the history of economics’ is gratefully acknowledged. Cambridge Journal of Economics 2005, 29, 601–618 doi:10.1093/cje/bei007 Advance Access publication 7 February, 2005 Ó The Author 2005. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.