What are Cournot and Bertrand models?
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 are the assumptions of the Cournot and Bertrand model?
Cournot and Bertrand focused on different details of the competitive process, and were led to specify different mechanisms by which individual consumers’ demands are allocated among competing firms: Cournot assumed that the market allo- cates sales equal to what any given firm produces but at a price determined by what …
What is the Bertrand model in economics?
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.
How is Cournot duopoly model different from Bertrand duopoly model?
In the Cournot model, firms control their production level, which influences the market price, while in the Bertrand model, firms choose the price of a unit of product to affect the market demand. ] considered a Cournot-Bertrand duopoly model, which is characterized by linear difference equations.
What is Bertrand Nash equilibrium?
Definition: 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.
Why is the Bertrand model useful?
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.
Why is Bertrand model useful?
Is Cournot better than Bertrand?
Bertrand competition versus Cournot competition If capacity and output can be easily changed, Bertrand is generally a better model of duopoly competition. If output and capacity are difficult to adjust, then Cournot is generally a better model.
Which is better Bertrand or Cournot?
If capacity and output can be easily changed, Bertrand is generally a better model of duopoly competition. If output and capacity are difficult to adjust, then Cournot is generally a better model.
What is the difference between Cournot and Bertrand 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.
What is the Cournot model in economics?
The Cournot model was based on the economist Antoine Augustin Cournot’s investigation of the duopoly in French spring water. In his model he assumes firms produce a homogenous product, they do not co-operate, firms act rationally and they have market power.
Who developed the model of duopoly?
Bertrand, a French Mathematician developed his own model of duopoly in 1883. Bertrand’s model differs from Cournot’s model in respect of its behavioural assumption.
What are the limitations of Cournot’s duopolistic model?
The original version is quite limited in that it makes the assumption that the duopolists have identical products and identical costs. Actually Cournot illustrated his model with the example of two firms each owning a spring of mineral water, which is produced at zero costs.