Assuming all the same market conditions, do the duopolists make more profit in the equilibrium of...

Assuming all the same market conditions, do the duopolists make more profit in the equilibrium of the Cournot model, or in the equilibrium of the Bertrand model?

-Duopolists make more profit in the Cournot model.

-Duopolists make more profit in the Bertrand model.

-Duopolists make the same profit in both the Cournot and the Bertrand model.

Assuming all the same market conditions, in which model is the consumer surplus larger, in the Cournot equilibrium, or in the Bertrand equilibrium?

-Consumer surplus is higher in the Cournot equilibrium.

-Consumer surplus is higher in the Bertrand equilibrium.

-Consumer surplus is the same in both the cases.

Solutions

Expert Solution

(1) In Bertrand model, competition is in terms of price and hence price is set at min(MC1, MC2) so that at best the firms get zero profit. If prices charged by the duopolists differ, than the firm charging the lowe price gets the entire market. On the other hand, in the Cournot model, firms compete based on the quantity and normally price >= MC, which allows firms to get some non-negative profit. In other words, Price_Bertrand <= Price_Cournot and Quantity_Bertrand >= Quantity_Cournot. In fact, The solution of Bertrand model is same as perfect competitive solution since price = MC. Hence, the correct option is [Duopolist make more profit in the Counot model]

(2) As mentioned above, for Betrand model, price is lower and quantity is higher than that of Cournot model, which allows more consumer surplus as compared to Cournot model. Therefore, the correct answer would be [Consumer surplus is higher in the Bertrand equilibrium]

Rahul Sunny answered 1 year ago

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