AP MicroeconomicsMarket Structures
Bertrand Competition
Bertrand competition is an oligopoly model where firms simultaneously set prices, and consumers buy from whoever charges less.
With identical products and equal constant costs, price competition drives firms to undercut each other until price equals marginal cost, giving the competitive outcome and zero economic profit even with only two firms, the Bertrand paradox. The result is sensitive to assumptions: product differentiation, capacity limits, or repeated play restore positive profits.
Formula / Example
With homogeneous goods and equal MC, equilibrium price P = MC (Bertrand paradox)