Under Bertrand competition, firms take the prices of rivals as given.
For a given number of firms, the perceived elasticity of demand under Bertrand competition is larger than that under Cournot competition; that is, for a given N, [e.
In the steady-state Nash equilibrium, Bertrand competition results in fewer number of firms, higher perceived elasticity of demand, and lower markups than Cournot competition does; that is, [N.
Thus, Bertrand competition remains more intense: Firms have less market power and therefore set lower markup rates.
Thus, the intuition behind the result in Proposition 2 seems to stem from the fact that Bertrand competition is more intense in the sense that both degree of market power and the endogenous markup with regard to free entry are lower.
The findings can be summarized as follows: (i) although the equilibrium number of firms under Bertrand competition is smaller than that under Cournot competition, Bertrand competition remains more intense; this is because the former still results in higher perceived elasticity of demand and lower profit margins set by firms; (ii) given the fact that the induced elasticity of the firms' markups with respect to free entry is also smaller under Bertrand, it is found that the propagation mechanism is greater under Cournot; (iii) the propagation mechanism is unequivocally greater with imperfect competition, regardless of whether markups are endogenous or not; and (iv) under imperfect competition, the propagation mechanism is greater with endogenous markups than with exogenous markups.
Under plausible parameter values, Bertrand competition adds about 10% persistence, while Cournot adds more than 20%.
c] for a given N, it is straightforward to conclude that the [PHI](N) expression under Bertrand competition, denoted by [[PHI].
Section III identifies the properties of spatial prices under Bertrand competition while section IV uncovers the behavioral determinants of single basing-point pricing.
Proposition 1 shows that under Bertrand competition, mill pricing obtains.