Which of the following statements is TRUE regarding collusion, Bertrand (identical products), and Cournot competition?
I. Prices are highest in collusion, next highest in Cournot, and lowest in Bertrand.
II. Output is highest in Bertrand, next highest in Cournot, and lowest in collusion.
III. Profit is highest in Bertrand, next highest in Cournot, and lowest in collusion.

Question

Quizplus · Accepted Answer

I. In collusion, firms act together to maximize joint profits, often leading to higher prices than in competitive markets. In Cournot competition, firms choose quantities independently, leading to lower prices than in collusion but higher than in Bertrand competition, where firms compete on price with identical products, driving prices down.II. Since Bertrand competition leads to aggressive price competition, it often results in higher output to capture market share. Cournot competition, with firms choosing quantities, results in lower output than Bertrand but higher than in collusion, where firms restrict output to keep prices high. III is incorrect because profit is typically highest in collusion, where firms can set higher prices by restricting output, lower in Cournot due to some degree of competition, and lowest in Bertrand due to intense price competition.

Which of the Following Statements Is TRUE Regarding Collusion, Bertrand