Bertrand Competition

Bertrand competition is the simultaneous price-setting model of oligopoly: firms sell a homogeneous product, consumers buy from the cheapest seller, and capacities are unconstrained. With two symmetric firms ($MC_1 = MC_2 = c$) the unique Nash Equilibrium is $P_1^* = P_2^* = c$ with zero profits — the Bertrand paradox: just two firms suffice for the perfect-competition outcome. With asymmetric costs $c_1 < c_2$, the efficient firm limit-prices at $\min(c_2, P_1^M)$ — just undercutting the rival's marginal cost.

type: structure-comparison
structures: monopoly,cournot,bertrand
A: 10
c: 2

The three structures side by side ($A=10$, $c=2$): quantity climbs, price falls, industry profit collapses as you move from monopoly → Cournot → Bertrand. With just two firms Bertrand already reaches the competitive outcome.

When to use

Cite Bertrand whenever firms compete on price for a homogeneous good. The knife-edge predictions break when any assumption is relaxed: differentiated products (Monopolistic Competition), capacity constraints (Bertrand-Edgeworth), non-constant MC, multiple periods (collusion possible), or asymmetric information. The collapse to $P = MC$ is the reductio that motivates everything more realistic.