Crush and Frenzy both produce motorized bicycles, which are identical in all aspects. The total demand in this market is for Q motorized bicycles. The price of Crush's bicycle is P_C and the price of Frenzy's bicycle is P_F. If the firms are engaged in Bertrand competition, which of the following statements is TRUE?
I. If P_C > P_P, Crush sells Q bicycles.
II. If P_C = P_F, Crush sells 0.50Q bicycles.
III. If P_C < P_F, Crush sells zero bicycles.

Question

Quizplus · Accepted Answer

In Bertrand competition, if two firms sell identical products, the firm with the lower price captures the entire market. If prices are equal, they split the market equally. Thus, statement II is correct, indicating that if Crush and Frenzy price their bicycles the same, they each sell half of the total market demand (0.50Q). Statements I and III are incorrect because they misrepresent how market share is distributed in Bertrand competition based on pricing.

Crush and Frenzy Both Produce Motorized Bicycles, Which Are Identical