In which model does a firm set a competitive price in an oligopoly?
Understand the Problem
The question is asking which specific model within the context of oligopoly explains how a firm sets a competitive price. The options provided include various economic models that relate to pricing strategies in oligopolistic markets, focusing on the characteristics and interactions between firms.
Answer
Bertrand model
The Bertrand model is where a firm sets a competitive price in an oligopoly.
Answer for screen readers
The Bertrand model is where a firm sets a competitive price in an oligopoly.
More Information
The Bertrand model focuses on price competition in oligopoly markets, with firms assuming an identical product and making their pricing decisions simultaneously. It is a model that predicts cases where firms set competitive prices, which can lead to prices equal to marginal costs.
Tips
A common mistake is to confuse the Bertrand model with the Cournot model, which involves competition based on quantities rather than prices.
Sources
- 18. Models of Oligopoly: Cournot, Bertrand, and Stackelberg - open.oregonstate.education
- Bertrand Oligopoly – RejLim - Harvard University - websites.harvard.edu
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