Question

Discuss the Cournot and Bertrand Models of oligopolistic competition, highlighting their strengths and weaknesses. Can the two models be reconciled? Can you give examples?

Answer 1

Answer: An oligopoly is a market between monopoly and perfect competition, in which the market is completely controlled by only a few firms producing same or homogeneous production.

Cournot oligopoly and Bertrand oligopoly are two most important models in oligopoly theory. In Cournot model, firms control their production level, which influence the market price, while in the Bertrand model, firms choose the price of a unit of product to affect the market demand.

Strength of Cournot model:

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1) The predictionsoof the Cournot model seem plausible, there is a troubling inconsistency with the Cournot behavioural postulate.

2) Each firm recognizes that its quatity choice affects price .

Weakness of Cournot model:

1) Price-setting is not explained by the Cournot model.

2) Price taking behavior also does not explain price-setting, but price-takers are consistent in their view

Bartand model strengths :

1) Bertrand model is different from Cournot model.

2) He assumed to be prices rather than quantities.

3) Allowing firms to set prices leads to Berland result