if the oligopolists do not form a cartel - perhaps because competition laws prohibit it - they must each decide on their own how much water to produce.
There are two effects to consider.
The output effect ; Because price is above marginal cost,selling 1 more at the going price will raise profit.
The price effect ; Raising production will increase the total amount sold, which will lower the price and lower the profit on all this is sold.
output effect > price effect = increase production until marginal effect balance.
price effect > output effect = won't raise production and possibly lower it.
Increased competition with more suppliers reduces the price effect keeps prices closer to marginal cost.