Intermediate Microeconomics · free preview
Bertrand Price Competition
With identical goods and price as the strategic variable, two firms undercut to the competitive outcome, price at marginal cost 12 with quantity 88, the Bertrand paradox, and differentiation, capacity limits, or repeated interaction are the real-world escapes that restore margins.
1. The undercutting spiral
The undercutting spiral
2. Why the paradox is fragile
Why the paradox is fragile
3. Choosing the model
Choosing the model
4. The paradox's value
The paradox's value
5. The paradox stated
What exactly is the Bertrand paradox about two firms' prices?
6. The undercut logic
Why is any price above 12 unstable in the Bertrand model?
7. Differentiation's rescue
How does product differentiation soften the Bertrand result?
8. Model choice
When is Cournot the more fitting model than Bertrand?
9. The Bertrand price
With MC 12, what is the Bertrand duopoly price? Write the number.
10. The Bertrand quantity
Compute demand at the Bertrand price, 100 minus 12, and write the number.
11. The paradox's profit
At the Bertrand equilibrium price of 12 with MC of 12, what does each duopolist earn?
12. The consumers' windfall
What is consumer surplus under the Bertrand price of 12?
13. Splitting the tied market
Both firms charge exactly 12 and split the demand of 88. What does each sell?
14. A third firm arrives
Does the Bertrand paradox survive a third firm entering?
15. Surplus under Bertrand
At the Bertrand price of 12, compute consumer surplus as half of 88 times 88, and write the number.
16. The tied firms' quantities
With both firms at price 12 and total demand of 88, compute each firm's quantity, and write the number.
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