What is one of the key assumptions of the Bertrand duopoly model?
Understand the Problem
The question is asking to identify one of the key assumptions associated with the Bertrand duopoly model from the provided options. This involves understanding the fundamental features of the model itself.
Answer
Consumers want to buy from the lowest priced firm.
One of the key assumptions of the Bertrand duopoly model is that consumers want to buy from the firm offering the lowest price.
Answer for screen readers
One of the key assumptions of the Bertrand duopoly model is that consumers want to buy from the firm offering the lowest price.
More Information
The Bertrand model is a cornerstone of oligopoly theory where firms compete by setting prices for homogeneous products. The assumption that consumers always buy from the lowest priced firm leads to a situation where firms continually undercut each other's prices until they reach a competitive equilibrium price.
Tips
A common mistake is overlooking factors like capacity constraints or product differentiation, which can influence market dynamics beyond strict price competition.
Sources
- Bertrand Competition | Wikipedia - en.wikipedia.org
- Bertrand Competition: Model & Assumptions | Vaia - vaia.com
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