Oligopoly: Bertrand Competition with Differentiated Goods
HTML-код
- Опубликовано: 8 сен 2024
- For and example with positive marginal cost, see here: • Bertrand Competition: ...
This video solves a problem based on Bertrand competition with differentiated goods. I have another video that reviews Bertrand competition with identical goods. IMPORTANT NOTE about Marginal Revenue in this video:
In Bertrand, a price competition model, the expression for MR is dTR/dP rather than the usual dTR/dQ. Likewise, if you setup up a profit function for each firm in this example, you would take the derivative of profit with respect to price, so the marginal profit expression is dProfit/P, not the usual dProfit/dQ. If you are still not convinced, see Microeconomics (page 467, including footnote #9) by Goolsbee, Levitt, and Syverson.
9 years later this video is still helping intermediate micro students. Thank you!
Im sitting here 11 hours out from my econ exam and this guy just made 12 weeks of school make sense in 7:51. What a legend
The three videos for the oligopolies were straight forward and well written. Thank you from Australia
your videos are extremely helpful and very concise, my respects to you sir
Actually, either MR= ∂TR/∂Q = MC = ∂TC/∂Q or MR= ∂TR/∂P = MC= ∂TC/∂Q will work. When MC=0, TC equals to a constant and it does not matter whether we choose ∂TC/∂Q or ∂TC/∂P as MC. Theoretically, ∂TR/∂P = ∂TC/∂Q may be misleading and meaningless.
Here are some supplementary explanations for the solution:
Firstly, the question actually assumes that the marginal costs for both firms are 0. Therefore, when we do some basic calculus here, we just need to maximize the Total Revenue (just ignore the total cost). Secondly, in bertrand oligopoly with differentiated goods, the firms choose different prices (not the production quantities) in order to maximize profits. Consequently, with MC=0, we can just take a derivative of TR w.r.t P and make the result equals to 0 (a basic calculus trick), and follow the steps in the video for the profit-maximizing prices and quantities for both firms.
Btw, I think the reason that the MCs are not different comes from the basic assumption of bertrand oligopoly model. Btw, it seems that the model settings are contradictory in different books.
Love you man, really loved you. Also subscribed
Thank you!!!
high five from italy bro, love u !!!!
Thank you! Really helpful! (From Beijing, China
Very helpful, thank you! Greetings form Norway
Thanks for the video, but i have a question. My uni question moves the MC to the left side and then multiplies it with Q. why is this
I love this ....keep it up and well taught
Thank you so much! Great explanation , simple and clear:)
great thanks! Ive spent an hour trying to understand this.
I love you, this is sooo easy
what if they colluded? what would be the price and quantity?
Does marginal revenue equals derivative of total revenue by price or it is derivative of total revenue by quantity? I think there is difference between them and derivative over price is not correct one.
I love you, thank you for helping me out
Saved my life, thanks
Thankyou for the simple explanation of the concept :)
So helpful. Big thanks 👍
How did you simplify is down from p= 16 + 1/9(p) to 8/9(p) = 16?
Anna Zhong subtract 1/9(p) from both sides of the equation. On the lefthand side of the equation you will have p - 1/9(p) = 8/9(p).
How can you do that with multiple firms, not just two?
in all your other videos, you use the inverse demand, solving demand equations and making P the subject. why not in this case? why was it always done in all previous videos ? Thank you
I think you cannot take derivative of TR with respect to P as a MR. MR is the derivative of TR w.r.t. Q and that should be equal to the Marginal cost which is equal to aTC/aQ.
what happens if both firms have a fixed cost?
What if marginal costs were constant at 1, what happens to the q term?
Thank mate very helpful
Life saver! Thanks
Are the goods complements or substitutes? Please explain.
very nice, i can graduate now
Good work.
Based on the price war concept of Bertrand, isn't it eventually P = MC rather than MR = MC. Hence there is no need to derive MR from TR. Isn't that true?
Yes that should be the case. Though we're looking for the Nash equilibrium but it must base on the Bertrand assumption that MC=P. Make P the subject of each firm and equate it to the MC which is zero.
What happens if one firm decides to increase the price?
How do you derive the demand function from the utility function when you want to exclude an income effect?
You want to solve for the Hicksian (or compenstated) demand, which only gives a substitution effect: ruclips.net/video/lq9w2qyNk1A/видео.html
if mc=40 and qi=100-2pi+pj (i,j are two companies)then pi=20 and qi=80 ?
MR=dTR/dQ not dTR/dP which will yield different results
+Jared Buck. Things are a little different when choosing prices, such as the Bertrand price competition model, rather than quantities, such as the Cournot quantity competition model. Marginal revenue in the Bertrand model is based on the change in total revenue from a small change in price (dTR/dP) instead of a small change in quantity. So technically, profit maximization for Bertrand occurs where dTR/dP = dTC/dP. Likewise, in this setup, the expression for marginal cost (dTC/dP) is based on the change in total cost from a small change in price.
+1sportingclays thank you for your response, that was my assumption and it makes sense however in my class I am currently taking our definition of marginal revenue was the same as in cournot. Is that because my professor is wrong or is it because there are different versions of Bertrand's model or different interpretations?
1sportingclays
Ist of all ur microeconomics video are too good.
Can u please upload macroeconomic or send me a link plzzzzzzz
can two frims have different demand function
how to solve the same question with cournot model.
How can this be right mr applies to a change in quantity not in price
In Bertrand, a price competition model, the expression for MR is dTR/dP rather than the usual dTR/dQ. Likewise, if you setup up a profit function for each firm in this example, you would take the derivative of profit with respect to price,so the marginal profit expression is dProfit/P, not the usual dProfit/dQ. If you are still not convinced, see Microeconomics (page 467, including footnote #9) by Goolsbee, Levitt, and Syverson.
Thank you again
Thank you!
How we can find cournot solution when this same ques is given...??plz reply as soon as possible
Here's a new video showing how to solve Cournot with differentiated products: ruclips.net/video/p6dPcM4uYuI/видео.html:
Sorry i have a question i have marginal cost = 36. So for TR1 ihave to do (p1-36)*(q1) ?
and at the end for the reaction function i have to put MR1=MC ? i hope u see this have an upcoming exam hahaha
Thats correct. π=pq(p1,p2)-cq(p1,p2)
What happens when Mc1
Firm 1 sets a monopoly price and captures the market. That's in the case of a large difference. In the case of small difference we will end up with a firm1 charging slightly less than firm 2 and making some profit, while firm2 will charge it's marginal cost and make zero profit.
Hey, isn't P=MC in bertrand's oligopoly?
Yes, but only when firms are producing identical goods. This video is for differentiated goods.
@@EconomicsinManyLessons This might be my doubt, too. I got your idea.
Isn't this the same as Cournot oligopoly ?
This model is different than Cournot. Cournot is about quantity competition, while Bertrand models price competition.
1sportingclays
oh so basically both companies undercut each other until p=mc so profits are zero whilst cournot find the best solution for both parties.
12/6=2, not 12. Reaction function for p1 should be p1=6+1/3p2
You mistook my sloppy 72 for 12, so in the video I do 72/12 = 6.
u cannot have MC equal 0, In Bertrand P=MC so TR in this case is 0 times 0,
For Bertrand competition with identical goods, you need to use a positive marginal cost. This video is not about Bertrand competition with identical goods. However, for Bertrand competition with differentiated goods, firms will still charge positive prices even if we assume a marginal cost of zero. Many intermediate microeconomics textbooks present (as does this video) Bertrand competition with differentiated goods using the zero marginal cost assumption (see for example Pindyck and Rubinfeld or Goolsbee, Levitt, and Syverson.)
this is incorrect.
lol, it is correct, it's bertrand and it's competition on price unlike cournot, it's on quantity
what happens if both firms have a fixed cost?