Bertrand game

Definition

Market simulation where two exclusive suppliers (who alone can offer a product and no other firm can) compete. Each supplier may choose its selling price and then must meet the demand of the consumers who are assumed to buy the cheaper of the two (if the quality is the same) or half of each (if the price is the same). The suppliers can then (1) enter into a price war and end up with zero profit, (2) collude and split high profits by maintaining a monopolistic price, or (3) employ tactics such as differentiating their products or announcing “we will match any price.” Named after the French mathematician Joseph Bertrand (1822-1900) who provided its mathematical basis.