The Bertrand model is a more plausible model of firm behavior than the Cournot model

Question

Quizplus · Accepted Answer

The Bertrand model assumes firms compete on price when selling a differentiated product, which is more plausible than the Cournot model that assumes firms compete on quantity when selling a homogeneous product. Therefore, option B is the correct choice. Option A is incorrect because the Cournot model assumes firms set quantity, not Bertrand. Option C is incorrect because firms selling non-differentiated products can still have market power and act strategically. Option D is incorrect because the Bertrand model does not predict that firms will price at marginal cost; rather, it predicts that firms will undercut each other's prices until they reach the level of marginal cost.

The Bertrand Model Is a More Plausible Model of Firm