Consider the following stylized representation of competition between two firms. The tension between conflict and cooperation is illustrated by the decisions of two firms competing to sell the same product. Cournot Ltd. and Bertrand Ltd., purveyors of mineral water, compete by choosing one of the two possible prices – high or low. Each firm’s profit depends also on the price of its rival. A firm earns the highest possible profit when it charges the low price while its rival charges the high price; moderately high profit when both firms charge the high price; moderately low profit when both charge the low price; and the lowest possible profit when it charges the high price and its rival charges the low price.
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