Bertrand–Edgeworth model
Okay kiddo, so you know how sometimes when you go to the store to buy something, you have a lot of choices of what to buy and where to buy it from? Well, imagine if some of the stores were trying to sell the same thing and they were all competing to get you to buy it from them. That's kind of what the Bertrand-Edgeworth model is all about.
In this model, there are two companies that are trying to sell the same thing, let's say it's toys. They have to decide what price to sell their toys for. If one company sells their toys for a higher price than the other company, then nobody will buy from them and they'll lose all their customers. So both companies want to sell their toys for the lowest price possible, so they can get more customers and make more money.
But wait, it's not that simple! The companies also have to think about something called "costs". This means how much money it takes to make the toys in the first place. If one company has to spend a lot of money to make the toys, then they can't sell them for too cheap or they'll lose money. So they have to find a balance between selling the toys for enough money to cover their costs, but also not making them too expensive so people will buy them.
The Bertrand-Edgeworth model helps us understand how these two companies will make their decisions. They have to take into account what their competitor is doing, as well as their own costs. They also have to think about what their customers want and how much they are willing to pay. It's a tricky balancing act!
In the end, we can use this model to predict what the prices of the toys will be, and which company will end up with more customers. It can help us understand how competition works in the real world, and how companies can make decisions to stay in business and make money.
In this model, there are two companies that are trying to sell the same thing, let's say it's toys. They have to decide what price to sell their toys for. If one company sells their toys for a higher price than the other company, then nobody will buy from them and they'll lose all their customers. So both companies want to sell their toys for the lowest price possible, so they can get more customers and make more money.
But wait, it's not that simple! The companies also have to think about something called "costs". This means how much money it takes to make the toys in the first place. If one company has to spend a lot of money to make the toys, then they can't sell them for too cheap or they'll lose money. So they have to find a balance between selling the toys for enough money to cover their costs, but also not making them too expensive so people will buy them.
The Bertrand-Edgeworth model helps us understand how these two companies will make their decisions. They have to take into account what their competitor is doing, as well as their own costs. They also have to think about what their customers want and how much they are willing to pay. It's a tricky balancing act!
In the end, we can use this model to predict what the prices of the toys will be, and which company will end up with more customers. It can help us understand how competition works in the real world, and how companies can make decisions to stay in business and make money.