Interactive module
Bertrand Competition
Move prices and watch customers rush toward the cheaper identical product.
Rule ledger
caseTwo convenience stores sell identical cola to the same neighborhood.
rule
profit = (price - cost) * quantityquestionWhen one strategy changes alone, whose payoff or fairness changes first?
Cola Price War
Cola storesRide-hailing couponsCoffee discounts
Store A
Price $4
120% customer flow
$240
Store B
Price $5
0% customer flow
$0
Cheaper store wins
Price war signal
Cheaper store wins
How to read this result
With identical products, a slightly lower price can pull customers away. As prices approach cost, consumers benefit while store margins shrink.Formula
profit = (price - cost) * quantityA tiny undercut can capture demand, so price competition pushes margins downward.
Step-by-step Explanation
Scenario
Two convenience stores sell identical cola to the same neighborhood.
Why This Matters
It explains price wars, commodity markets, and why differentiation protects profit.
Beginner-Friendly Summary
When products are identical and customers choose the cheaper option, competition can drive price toward cost.
Try changing the strategy and watch which result changes first.