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The Cournot Model: The Bertrand Model

808 Words4 Pages

Introduction
Joseph Bertrand (1822-1900) was a French Mathematician who invented the Bertrand competition which is a model of competition for an oligopoly in which firms rival in setting prices. An oligopoly is a market that is dominated by a small number of large firms (Moffat, 1983:219) and that is difficult to enter. It stands in strong contrast to the perfect competition in which a market has many well-informed buyers and sellers who are free to exit or enter the market (Moffat, 1983:229). The Bertrand competition is a result of Bertrand’s criticism on the Cournot Model and was formulated in 1883.

This essay discusses the economic contribution of Bertrand by firstly explaining his model and secondly evaluating the value of it in terms of the economical sciences. Next, it is going to state that a more important economic contribution of Bertrand is that his theory was the base for Edgeworth model and finally it establishes that Bertrand was the first economist that examines an oligopoly where firms set prices and therefore it is a …show more content…

Many economists after Bertrand tried to develop his model further to solve the problems mentioned above. Edgeworth (1845-1926), who analysed the Bertrand model including capacity constraints (Allen & Hellweg, 1986:176), evolved the Edgeworth-Bertrand Model, which is one of the most famous solution to the Bertrand Paradox today (Wolfstetter, 1994:2) and world-wide well recognized.
To conclude, it has to be said that Bertrand was the first economist that examines an oligopoly where firms set prices, and “ever since […] economists have been interested in static models of oligopoly where firms set prices.” (Maskin, 1986:382) For that reason, Bertrand’s model is not only a big step in economic theory but a milestone in introducing new ways of thinking to the economical field.

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