Although the setup of the Bertrand Model differs from the Cournot model only in the strategic variab

Although the setup - Although the setup of the Bertrand Model differs from the Cournot model only in the strategic variable the two models yield

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Unformatted text preview: Although the setup of the Bertrand Model differs from the Cournot model only in the strategic variable, the two models yield surprisingly different results. Whereas the Cournot model yields equilibriums that fall somewhere in between the monopolistic outcome and the free market outcome, the Bertrand model simply reduces to the competitive equilibrium, where profits are zero. Rather than take you through a series of convoluted equations to derive this result, we will simply show there could be no other outcome. The Bertrand equilibrium is simply the no profit equilibrium. First, we will demonstrate that the Bertrand outcome is indeed an equilibrium. Imagine a market in which two identical firms sell at market price P, the competitive price at which neither firm earns profits. Implicit in our argument is our assumption that at equal price, each firm will sell profits....
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This note was uploaded on 12/13/2011 for the course ECO 1320 taught by Professor Staff during the Fall '11 term at Texas State.

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Although the setup - Although the setup of the Bertrand Model differs from the Cournot model only in the strategic variable the two models yield

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