How is Bertrand Duopoly calculated?
Bertrand’s equilibrium occurs when P1=P2=MC, being MC the marginal cost, yielding the same result as perfect competition. The logic is simple: if the price set by both firms is the same but the marginal cost is lower, there will be an incentive for both firms to lower their prices and seize the market.
What is Bertrand price competition?
Bertrand competition is a model of competition used in economics, named after Joseph Louis François Bertrand (1822–1900). Firms compete by setting prices simultaneously and consumers want to buy everything from a firm with a lower price (since the product is homogeneous and there are no consumer search costs).
Do firms earn greater profits in Bertrand or Cournot competition?
Vives (1985) and Singh and Vives (1984) found that Bertrand competition results in higher consumer surplus, lower profits and higher overall welfare than Cournot competition in a duopoly model where goods are substitutes and the firms’ only choice variable is either price or output.
Is Bertrand equilibrium Pareto efficient?
Context: When the industry is symmetric, i.e., comprising firms of equal size and identical costs, and the costs are constant and the product homogenous, the Bertrand equilibrium is such that each firm sets price equal to marginal cost, and the outcome is Pareto efficient.
Is Bertrand equilibrium efficient?
When the industry is symmetric, i.e., comprising firms of equal size and identical costs, and the costs are constant and the product homogenous, the Bertrand equilibrium is such that each firm sets price equal to marginal cost, and the outcome is Pareto efficient.
Is Bertrand competition efficient?
Bertrand competition has traditionally been considered as more efficient in welfare terms than Cournot competition because it leads to lower prices and larger quantities (see for example Shubik, 1980, Vives, 1985, Singh and Vives, 1984).
Is Bertrand solution Pareto efficient?
When did Bertrand come up with the duopoly model?
Bertrand developed his duopoly model in 1883. His model differs from Cournot’s in that he assumes that each firm expects that the rival will keep its price constant, irrespective of its own decision about pricing.
Which is an assumption of the Cournot duopoly model?
Besides, one of the assumptions of Cournot’s duopoly model is that firms supply a homogeneous product. Considering this, Bertrand proposed an alternative to Cournot. Considering Bertrand’s model from a game theory perspective, it can be analysed as a simultaneous game where the strategic choice is on prices, rather than quantities.
Which is the equilibrium price in Bertrand’s model?
Each firm maximises its own profit, but the industry (joint) profits are not maximized. The equilibrium price will be the competitive price. (In the example of costless mineral-water production, the price in Bertrand’s model would fall to zero.
Which is more logical, a duopoly or quantity competition?
In some cases, competition in terms of price changes seems more logical than quantity competition, especially in the short run. Besides, one of the assumptions of Cournot’s duopoly model is that firms supply a homogeneous product. Considering this, Bertrand proposed an alternative to Cournot.
https://www.youtube.com/watch?v=Tp8oyL5hI1I