Economics Oligopoly Questions
The Bertrand model in oligopoly is a theoretical economic model that analyzes the behavior of firms in a market where there are only a few dominant firms. It assumes that firms compete by setting prices rather than quantities. In this model, firms assume that their rivals will keep their prices constant, and they set their own prices accordingly. The Bertrand model predicts that in a duopoly (market with two firms), the firms will undercut each other's prices until they reach a point where they are both charging the same price, which is equal to their marginal cost. This model highlights the importance of price competition in oligopolistic markets.