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Two software firms sell a similar software. Would Bertrand competition or Cournot competition be a better...

  1. Two software firms sell a similar software. Would Bertrand competition or Cournot competition be a better approximation for their behavior? Why?
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Answer #1

A Bertrand model would be a much better approximation for the two firms selling similar softwares. This is because there is no rapid change in prices of the two firms, whereas the quantity of production or the output level are adjusted more rapidly than the prices. That is why it is more similar to price competition of Bertrand than the cournot model.

For example a software company can easily supply varied quantities of products on demand. Hence market is similar to Bertrand competition.

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