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    Question

    In which of the following models, price   is driven down to marginal cost?

    A Cournot Correct Answer Incorrect Answer
    B Bertrand Correct Answer Incorrect Answer
    C Stackelberg Correct Answer Incorrect Answer
    D Cartel Correct Answer Incorrect Answer

    Solution

    Interesting fact about Bertrand model is that it’s the same outcome that would have occurred if they were in a perfectly competitive market because competition would have driven prices down to marginal cost. So, in a situation where competition is based on price and the good is relatively homogeneous, as few as two firms can drive the market to an efficient outcome.

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