A model of oligopoly
with confusing origin. It is named after mathematician Joseph Bertrand
. However, that may be due to misattribution and the model may instead be due to Francis Ysidro Edgeworth
, and is sometimes called the "Bertrand-Edgeworth Oligopoly" model
Using the simple example, of duopoly, imagine there are two firms selling a particular product. Each firm decides independently and simultaneously what price to charge for their product. Both firms stand ready to deliver any quantity of the product.
While the overall idea is very similar to the Cournot Oligopoly, it works significantly differently because of the discrete reaction to price. It is assumed that all consumers will choose to purchase from whichever firm has the lowest price. Therefore, even with only two firms the Bertrand Oligopoly tends to be the competitive equilibrium price, unlike in the Cournot Oligopoly where there is a gradually lowered price for any increase in output, and firms get extra-competitive profits.