Bertrand Equilibrium

The only important change is that firms now set prices rather than quantities. Each firm is willing to sell as much quantity as is demanded at the price it sets.

Same data than in Cournot Model.

If p1 is above p2, the residual demand curve facing F1 is zero.
If p1 <p2, the residual demand curve facing F2 is zero and the residual demand curve facing F1 equals the market demand .

The only possible Bertrand Equilibrium (or Nash-in-prices Equilibrium) is attained when market price equals Marginal Cost of 0,28.

When both firms charge 0,28, neither firm profits by changing its price. If a firm lowers its price, it loses money. If either firm raises its price, ilt makes no sales at all.

Sources :

Modern Industrial Organization, 2nd edition, Dennis .W. Carlton , Jeffrey .M. Peroloff, Addfison-Wesley, 1994

Economie Industrielle ( traduction de la 2ème édition par Fabrice Mazerolle), Dennis .W. Carlton , Jeffrey .M. Peroloff, de Boeck Université, 1998

Gaining and Soustaining Competitive Advantage, Jay. B. Barney, Addison-Wesley, 1997

Contemporary Strategic Analysis, Robert M. Grant, 3th edition, Blackwell, 1998

Strategic Management, Professor Raphael Amit, Faculty of Commerce and Business Administration, University of British Columbia, Vancouver, B.C., Canada

Cours de Microéconomie, Bernard Jaquier, Ecole Hôtelière de Lausanne, 2003

 

Page publisher : Bernard Jaquier, Professor in Economics and Finance, Ecole Hôtelière de Lausanne, Switzerland, 2003