Economics 1010a1 Lecture Notes - Lecture 1: Nash Equilibrium
Task 15 - Bertrand Oligopoly
1. Does this scenario constitute a game?
Yes this scenario constitutes a game. If one firm lowers their price, the whole market will go to that
firm (because it has the lowest price). The other firm will also lower their price, because otherwise,
they won’t get any customers. Eventually, they will end up at the same price in the end (everyone
gets 50% of the customers).
Firm one
Firm two
High price
Low price
High price
50 ; 50
0 ; 100
Low price
100 ; 0
50 ; 50
2. What is the market price in Atlantis?
Customers consider the products of the firms to be homogeneous. So if one firm lowers their price,
the customers will go to the firm with the lower price. Both firms will keep lowering their price, until
they reach the price of $15. It will not go below $15, because they would start making a loss ($15 is a
production loss).
3. How many Nash equilibria are there?
Firm one
Firm two
High price
Low price
High price
50 ; 50
0 ; 100
Low price
100 ; 0
50 ; 50
There is only one Nash equilibrium. The Nash equilibrium is at the lower price ($15)
4. Does the outcome differ from that in a Cournot Duopoly?
No. In a Cournot Duopoly, firms would choose the higher production quantity. If the demand is high
enough and the production cost stay the same, both firms would produce the same amount of a
product. This happened also in this example → both firms started to produce the same.
Document Summary
If one firm lowers their price, the whole market will go to that firm (because it has the lowest price). The other firm will also lower their price, because otherwise, they won"t get any customers. Eventually, they will end up at the same price in the end (everyone gets 50% of the customers). Customers consider the products of the firms to be homogeneous. So if one firm lowers their price, the customers will go to the firm with the lower price. Both firms will keep lowering their price, until they reach the price of . In a cournot duopoly, firms would choose the higher production quantity. If the demand is high enough and the production cost stay the same, both firms would produce the same amount of a product.
