Managerial Economics and Strategy, 2/e

11.3 Bertrand Oligopoly

We have examined how oligopolistic firms set quantities to try to maximize their profits. However, many oligopolistic firms set prices instead of quantities and then allow consumers to decide how much to buy at those prices. The market equilibrium in an oligopoly may be different if firms set prices rather than quantities.

In monopolistic and competitive markets, the issue of whether firms set quantities or prices does not arise. Competitive firms have no choice: They cannot affect price and hence can choose only quantity (Chapter 8). A monopoly can choose either price or quantity, but it cannot set both independently. If it sets one, the other is determined from the demand curve. The monopoly equilibrium is the same whether ...