Cournot Competition vs Bertrand Competition

Cournot competition is an oligopoly model where firms simultaneously choose how much quantity to produce, and the combined output sets the market price.

Each firm picks its output taking rivals' outputs as given, and equilibrium occurs where their reaction functions intersect (a Nash equilibrium in quantities). The result lies between monopoly and perfect competition: price exceeds marginal cost and firms earn positive profit, but less than a monopolist would. As the number of firms rises, the outcome approaches the competitive one.

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.