Bertrand Competition Versus Cournot Competition
Neither model is necessarily "better." The accuracy of the predictions of each model will vary from industry to industry, depending on the closeness of each model to the industry situation. If capacity and output can be easily changed, Bertrand is generally a better model of duopoly competition. Or, if output and capacity are difficult to adjust, then Cournot is generally a better model. Under some conditions the Cournot model can be recast as a two stage model, where in the first stage firms choose capacities, and in the second they compete in Bertrand fashion.
Bertrand predicts a duopoly is enough to push prices down to marginal cost level; a duopoly will result in an outcome exactly equivalent to what prevails under perfect competition.
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Famous quotes containing the word competition:
“Such joint ownership creates a place where mothers can “father” and fathers can “mother.” It does not encourage mothers and fathers to compete with one another for “first- place parent.” Such competition is not especially good for marriage and furthermore drives kids nuts.”
—Kyle D. Pruett (20th century)