Bertrand competition

Updated: Aug 20, 2021

Competition between two or more firms in an industry with product price as the strategic variable. This encourages the use of price-cutting as a form of competition. If the products produced by the firms are perfect substitutes, in the Nash equilibrium of the price-setting game, price equals marginal cost. The market equilibrium is then efficient even though the number of competing firms is limited. Bertrand duopoly is the special case of a market with two sellers engaged in price competition.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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