Bertrand Competition

Bertrand competition is a market scenario where firms compete by setting prices rather than quantities. In this model, two or more companies offer similar products and drop their prices to attract customers. The firm with the lowest price typically captures the entire market, leading to very low profit margins. This situation can continue until prices reach the level of production costs, resulting in minimal profits for all firms. Consequently, Bertrand competition highlights the importance of pricing strategies in markets with similar products, as it drives companies to continuously adjust prices to maintain or gain market share.