Implications of the Bertrand Model

In 1893 French economist Joseph Bertrand developed his Bertrand model of disputation from his review of Antoine Cournots study of a Spring Water duopoly. His literary criticism lay with how pie-eyeds in oligopolies compete. In his model firms compete with legal injurys quite an than Cornots quantities. (REFERENCE TO SPANISH JOURNAL) The model consists of two firms who set equipment casualtys simultaneously and respectively (HUGH GRAVIELLE AND AY REES, MICROECONOMICES), jean tiral explains this as when one firm sets its scathe it is unknowledgeable to its rivals monetary value, rather it anticipates what they leave charge. It is fabricated products are homogeneous and perfect substitutes (ECCSTRAT) and due to the nature of the product the firm supplying output at the lowest price will gain the entire grocery store demand. (GB!) This firm will pass water to supply all the forthcoming demand at the price they have set; gb1 from this an important assumption of the model is that there are no capacity constraints, that both firms have the very(prenominal) marginal cost, which remains constant, and that demand is liner. GB2 As stated, the entire market demand for homogeneous products will go to the firm offering the lowest price, although if both firms were to wander at the same price a sharing rule must be assumed GB2.

Using an example from the ((((((( lets suppose the market demand for a homogeneous product is given by, Q = 120-p (where Q is quantity demanded and p is price charged). The marginal cost (MC) for both manufacturers is, C=$30, and both producers sell output at p=c=$30. The demand for from separately one producer is Q=0.5*120-p=45. Lets say producer A increased their price to c=$31, the entire market demand would transfer to producer B who would now have a demand turn tail of Qb=120-c=90, while producer A would have zero demand. save if producer A had reduced their price to c=$29, they would pose the entire market demand through charging the lowest cost, til now they would make a $1 loss in each product sold. From this, the Nash equilibrium... If you want to get a full essay, rank it on our website: Orderessay

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