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Unformatted text preview: Cournot and Bertrand Models The two models we studied had very similar assumptions, but very different conclusions. The Cournot model predicted a duopoly prices were lower than monopoly prices but higher than under perfect competition. The Bertrand predicted duopolies would drive prices down to marginal costs, as is the case with perfect competition. Which leads to asking 1)why the outcomes are so different and 2)which model is more realistic. If we view firms as making two decision- capacity and pricing, we can shed some light on the differences in the two models. Cournot and Bertrand Models The relative timing of each decision is crucial for predicting equilibrium outcomes. Games with two strategic decisions can be modeled as two stage games. Long-run decision ar made in the first stage, and short run decisions are made in the second stage given the values of the first stage decisions....
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