14.5 Bertrand Oligopoly Model

We have examined how oligopolistic firms set quantities to try to maximize their profits. However, many such firms set prices instead of quantities and allow consumers to decide how much to buy. The market equilibrium is 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). The monopoly equilibrium is the same whether the monopoly sets price or quantity (Chapter 11).

In 1883, the French mathematician Joseph Bertrand rejected Cournot’s assumption that the oligopoly firms set quantities. He argued that ...

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