Economics • Economic BasicsMedium
In the context of oligopoly models, what is the key behavioral assumption in the 'Bertrand Competition' model?
A. Firms choose quantities simultaneously and compete on output levels.
B. Firms choose prices simultaneously and consumers buy from the firm with the lowest price.✓ Correct Answer
C. One firm acts as a leader and chooses its output before the follower firm.
D. Firms collude perfectly to maximize joint industry profits.
💡 Solution & Explanation
Bertrand competition assumes that firms simultaneously set their prices and consumers purchase exclusively from the firm offering the lowest price. Models where firms choose quantities rather than prices are associated with Cournot competition. Under homogeneous product assumptions, Bertrand competition drives market prices down to marginal cost.
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