Oligopoly: Bertrand Competition with Differentiated Goods

[@willbaum5300]

9 years later this video is still helping intermediate micro students. Thank you!

[@Sparky_Moto]

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

[@ranulranepura7210]

The three videos for the oligopolies were straight forward and well written. Thank you from Australia

[@BLINKBOXHD]

your videos are extremely helpful and very concise, my respects to you sir

[@JMRG2992]

Love you man, really loved you. Also subscribed

[@EconomicsinManyLessons]

Thank you!!!

[@thomaswei7395]

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.

[@alessandrocampi7648]

high five from italy bro, love u !!!!

[@Victoria_JV]

Thank you so much! Great explanation , simple and clear:)

[@IronLaeg15]

great thanks! Ive spent an hour trying to understand this.

[@homanwong2627]

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.

[@IcyboyyGaming]

Thank you! Really helpful! (From Beijing, China

[@EskilSkjerve]

Very helpful, thank you! Greetings form Norway

[@XAUGEEK]

what if they colluded? what would be the price and quantity?

[@alext1134]

I love you, thank you for helping me out

[@HappinessMkhumba]

I love this ....keep it up and well taught

[@leonieh8698]

How can you do that with multiple firms, not just two?

[@karankk92]

Thankyou for the simple explanation of the concept :)

[@marnixe1720]

I love you, this is sooo easy

[@ayeshahs.9468]

So helpful. Big thanks 👍

[@hakobhayruni4710]

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.

[@NoahvPutten]

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

[@m.kassis8485]

Saved my life, thanks

[@JohnSmith-oj4jp]

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

[@arielseah7125]

what happens if both firms have a fixed cost?

[@CaraxYT]

What if marginal costs were constant at 1, what happens to the q term?

[@AnnaZhong1]

How did you simplify is down from p= 16 + 1/9(p) to 8/9(p) = 16?

[@EconomicsinManyLessons]

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).

[@geraldusgilbert3997]

Are the goods complements or substitutes? Please explain.

[@TheExceptionalState]

Life saver! Thanks

[@cksheng]

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?

[@williamsasenso-agyemang8303]

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.

[@박인희-v4x]

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.

[@sdlfjlsdkf]

What happens if one firm decides to increase the price?

[@Neha-tk3hc]

how to solve the same question with cournot model.

[@anarki777]

Good work.

[@刘一铄-y5w]

can two frims have different demand function

[@deepikaaggarwal1901]

How we can find cournot solution when this same ques is given...??plz reply as soon as possible

[@EconomicsinManyLessons]

Here's a new video showing how to solve Cournot with differentiated products: kzbin.info/www/bejne/pmfHgZaDadqMq6s:

[@mguei95]

Thank mate very helpful

[@Xez1919]

How do you derive the demand function from the utility function when you want to exclude an income effect?

[@EconomicsinManyLessons]

You want to solve for the Hicksian (or compenstated) demand, which only gives a substitution effect: kzbin.info/www/bejne/oqKcqGWnrrOeZ6M

[@Real4Bas]

Thank you again

[@x7xDarkPlayerx7x]

Hey, isn't P=MC in bertrand's oligopoly?

[@EconomicsinManyLessons]

Yes, but only when firms are producing identical goods. This video is for differentiated goods.

[@IcyboyyGaming]

@@EconomicsinManyLessons This might be my doubt, too. I got your idea.

[@Orthovisual]

if mc=40 and qi=100-2pi+pj (i,j are two companies)then pi=20 and qi=80 ?

[@seamusbjh]

Thank you!

[@jradbuck]

MR=dTR/dQ not dTR/dP which will yield different results

[@EconomicsinManyLessons]

+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.

[@jradbuck]

+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?

[@abhishekbhandari2203]

1sportingclays Ist of all ur microeconomics video are too good. Can u please upload macroeconomic or send me a link plzzzzzzz

[@jakaprofesor11]

How can this be right mr applies to a change in quantity not in price

[@EconomicsinManyLessons]

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.

[@harliquinrugb6853]

Isn't this the same as Cournot oligopoly ?

[@EconomicsinManyLessons]

This model is different than Cournot. Cournot is about quantity competition, while Bertrand models price competition.

[@harliquinrugb6853]

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.

[@Saruman1000]

very nice, i can graduate now

[@xxibgdrgn62]

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

[@MrScottishBeaver]

Thats correct. π=pq(p1,p2)-cq(p1,p2)

[@QuanAlejandro]

What happens when Mc1

[@SemenenkoVV]

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.

[@Bandittass]

12/6=2, not 12. Reaction function for p1 should be p1=6+1/3p2

[@EconomicsinManyLessons]

You mistook my sloppy 72 for 12, so in the video I do 72/12 = 6.

[@brandon-vd7lp]

this is incorrect.

[@graciareinhard3454]

lol, it is correct, it's bertrand and it's competition on price unlike cournot, it's on quantity

[@nilssalomonsson8757]

u cannot have MC equal 0, In Bertrand P=MC so TR in this case is 0 times 0,

[@EconomicsinManyLessons]

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.)

[@labroskab2297]

what happens if both firms have a fixed cost?