Cournot’s model and Bertrand’s model are two different approaches to modeling oligopoly behavior, and they make different assumptions about how firms in an oligopolistic market set their prices and quantities.

Get the **full solved assignment PDF of MEC-101 of 2023-24** session now.

Here are the key differences between Cournot’s and Bertrand’s models of oligopoly:

**Price vs. Quantity Competition:**

**Cournot Model:**Assumes firms compete in quantities. Each firm chooses the quantity it will produce, taking the output of other firms as given.**Bertrand Model:**Assumes firms compete in prices. Each firm sets its price independently, assuming that other firms’ quantities remain fixed.

**Strategic Variable:**

**Cournot Model:**Firms choose the quantity of output they will produce.**Bertrand Model:**Firms choose the price at which they will sell their output.

**Reaction Function:**

**Cournot Model:**Firms react to changes in the output levels of their competitors. The reaction function specifies the optimal quantity for a firm given the quantities chosen by its rivals.**Bertrand Model:**Firms react to changes in prices set by their competitors. The reaction function specifies the optimal price for a firm given the prices set by its rivals.

**Nature of Competition:**

**Cournot Model:**Assumes that firms compete in quantities simultaneously, recognizing that their quantities affect market price.**Bertrand Model:**Assumes that firms compete in prices simultaneously, recognizing that customers will choose the lowest-priced option.

**Collusion Incentives:**

**Cournot Model:**Firms may find it easier to tacitly collude and coordinate their production levels.**Bertrand Model:**Firms may find it harder to collude as price competition can lead to undercutting and a race to lower prices.

**Output Levels and Prices:**

**Cournot Model:**Output levels are typically below perfect competition levels but higher than monopoly levels.**Bertrand Model:**Prices tend to converge towards marginal cost under Bertrand competition, resembling perfect competition.

In summary, Cournot’s model focuses on quantity competition and strategic choices in production levels, while Bertrand’s model focuses on price competition and strategic pricing decisions. The assumptions and outcomes of each model have implications for understanding how firms behave and interact in oligopolistic markets.