Bertrand’s Model of Duopoly

Feng et al. (2013), defined oligopoly as a market structure characterized by the fewness of firms that have a significant level of interdependence. Models of oligopoly focus on explaining the decisions on output and prices of an oligopoly market. These models are founded on the fact that the interaction between firms is very sophisticated and depends on various aspects such as whether there is a dominant firm, whether the product is differentiated or homogeneous, or whether the competition between firms is priced or output-based. This essay explores Bertrand’s model of the duopoly. It highlights how the model differs from Cournot’s model and forms an opinion about the two models based on their applicability.