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Equilibria in Cournot’s and Bertrand’s models generate different economic outcomes:

  • equilibrium price in Bertrand’s model is c

price associated with an equilibrium of Cournot’s model is (α + 2c), which exceeds c since α > c. 1 3

Does one model capture firms’ strategic reasoning better than the other?

Bertrand’s model: firm changes its behavior if it can increase its profit by changing its price, on the assumption that the other firm will not change its price but the other firm’s output will adjust to clear the market.

Cournot’s model: firm changes its behavior if it can increase its profit by changing its output, on the assumption that the output of the other firm will not change but the price will adjust to clear the market.

If prices can easily be changed, Cournot’s model may thus better capture firms’ strategic reasoning.

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