In a Bertrand model of oligopoly
A) Firms produce differentiated products and set their prices simultaneously
B) Firms produce homogenous products and set their prices simultaneously
C) Firms choose how much to produce simultaneously and the price clears the market given the total quantity produced
D) Firms choose how much to produce and the price to charge simultaneously

Question

Quizplus · Accepted Answer

In a Bertrand model of oligopoly, firms produce homogenous products and set their prices simultaneously. The key feature of this model is that firms act as if they were in a price war, each trying to undercut the other to gain market share. As a result, prices are driven down to the marginal cost of production, leading to zero economic profit in the long run.

In a Bertrand Model of Oligopoly