Consumers Lose as Firms Differentiate Products More Under Bertrand Competition
This study explores why we often see different types of competition among similar products in markets. It suggests that when companies can make their products stand out without spending too much, they are more likely to do so under certain competition styles. For example, in some cases, companies in a type of competition called Bertrand might end up charging higher prices and earning more money than those in Cournot competition, even though we usually think Bertrand is more competitive. Surprisingly, as products become more distinct in the Bertrand model, consumers might end up paying more and actually getting less value, unlike in the Cournot model where they can benefit from variety.