Table of Contents
What is the difference between Bertrand and Cournot?
Cournot model assumes that the market allocates sales equal to whatever any given firm quantity produced, but at the price level determined by the market. Whereas the Bertrand model assumes that the firm with the lowest price acquires all the sales in the market.
What does the Cournot model show?
The Cournot model of oligopoly assumes that rival firms produce a homogenous product, and each attempts to maximize profits by choosing how much to produce. All firms choose output (quantity) simultaneously. The basic Cournot assumption is that each firm chooses its quantity, taking as given the quantity of its rivals.
What is an example of Cournot oligopoly?
OPEC is a good example of a Cournot oligopoly: its participants affect prices by changing their output.
Is Bertrand competition good?
Bertrand competition is a model of competition in which two or more firms produce a homogenous good and compete in prices. Theoretically, this competition in prices, providing the goods are perfect substitutes, ends with the firms selling their goods at marginal costs and thus making zero profits.
Why is Cournot better than Bertrand?
The Cournot model considers firms that make an identical product and make output decisions simultaneously. The Bertrand model considers firms that make and identical product but compete on price and make their pricing decisions simultaneously.
What do Cournot and Bertrand models have in common?
The Cournot and Bertrand models have in common that firms produce a homogenous good.
What do the Cournot and Bertrand models have in common?
What are the difference and similarity between Bertrand and Cournot model?
What is an example of Bertrand oligopoly?
An example of a Bertrand oligopoly comes form the soft drink industry: Coke and Pepsi (which form a duopoly, a market with only two participants). Both firms compete by changing their prices based on a function that takes into account the price charged by their competitor.
Which is more efficient Cournot or Bertrand?
Furthermore, the Bertrand equilibrium is more efficient than the Cournot equilibrium if either R&D productivity is low, or spillovers are weak, or products are very different.
Why is Bertrand model useful?
They are also used in merger analysis, to see whether a proposed merger poses a competition concern. Moreover the traditional Cournot and Bertrand models provide a useful “rule of thumb” and help to set a benchmark for analysis, explaining what can happen in different types of markets.
Is Cournot or Bertrand more realistic?
The Cournot model leads to more realistic outcomes, but as most firms seem to set their prices, not their quantities, many economists have argued that the Cournot model gives the right answer for the wrong reason.
Is Cournot model realistic?
Although the Cournot model doesn’t necessarily give a realistic view of the world due to its limiting assumptions, it does give competition authorities an idea of whether there might be a competition concern, by allowing them to compare outcomes to a monopoly and perfect competition.
What does the Bertrand model state about the relationship between oligopolies and price competition?
In a Bertrand model of oligopoly, firms independently choose prices (not quantities) in order to maximize profits. This is accomplished by assuming that rivals’ prices are taken as given. The resulting equilibrium is a Nash equilibrium in prices, referred to as a Bertrand (Nash) equilibrium.
What is the difference between Cournot model and Bertrand model?
The Cournot model considers firms that make an identical product and make output decisions simultaneously. The Bertrand model considers firms that make and identical product but compete on price and make their pricing decisions simultaneously.
Is there a solution to the Cournot model?
Interestingly, the solution to the Cournot model is the same as the more general Nash equilibrium concept introduced by John Nash in 1949 and the one used to solve for equilibrium in non-cooperative games in Module 17.
Does Cournot competition lead to perfect competition?
For now, all you need to know is that Cournot competition leads to an inefficient equilibrium, i.e. a price above the price in perfect competition and economic profits for the firms.
What is the basic concept of Bertrand competition?
Bertrand Competition describes an industry structure (i.e. an oligopoly) in which competing companies simultaneously (and independently) chose a price at which to sell their products. The market demand at this price then determines quantity supplied.