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.
Read more about this topic: Bertrand Competition
Famous quotes containing the word competition:
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—Lawrence Sutton, British prizewinner in competition in Sunday Correspondent (London)