What is the fundamental reason why the Cournot model predicts that firms will make a positive profit, whereas the Bertrand model predicts that firms will make no profit? In the Cournot model firms have the ability to commit, but not in Bertrand. Firms compete more intensively in Bertrand because buyers are more responsive to differences in price compared to differences in quantity. Goods are complements in Cournot but substitutes in Bertrand. Firms adjust quantity gradually in Cournot, but in Bertrand price adjustments are immediate. Tacit collusion is more appealing in Cournot so firms tend to compete less.

What is the fundamental reason why the Cournot model predicts that firms will make a positive profit, whereas the Bertrand model predicts that firms will make no profit? In the Cournot model firms have the ability to commit, but not in Bertrand. Firms compete more intensively in Bertrand because buyers are more responsive to differences in price compared to differences in quantity. Goods are complements in Cournot but substitutes in Bertrand. Firms adjust quantity gradually in Cournot, but in Bertrand price adjustments are immediate. Tacit collusion is more appealing in Cournot so firms tend to compete less.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter11: Profit Maximization

Section: Chapter Questions

Problem 11.11P

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