Practice question · True or false
In the Bertrand model with identical products and equal costs, two firms are enough to drive the price to marginal cost.
Hints
- With identical products, undercutting captures the whole market.
- The undercutting continues until no margin remains.
Show the answer
True
Why
The Bertrand paradox: with homogeneous goods, each firm undercuts the other until . Two firms replicate the competitive outcome, a stark contrast to Cournot.
Practise Monopolistic Competition and Oligopoly
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