Bertrand Model

The Bertrand Model is an economic concept that describes how companies competing in the same market set prices for their products. In this model, firms choose prices simultaneously, and consumers buy from the cheapest option. If one company lowers its price slightly, others usually follow to stay competitive, leading to prices dropping until they reach the production cost. This results in firms earning only normal profits. The model highlights how intense price competition can drive prices down, often to the minimum level necessary to cover costs, especially when products are similar and there are many competitors.