ABSTRACT
Economists also have analyzed the competition between duopolists when they compete on the basis of the prices they set, not the quantities they produce. If one firm sets its price assuming that the price of the other firm will remain constant, we can derive a reaction curve similar to the situation shown for quantity choices. If the two firms produce identical goods, competition based on prices will result in a perfectly competitive solution where price equals marginal cost. In such a setting the implications for potential government policy intervention can be quite different from in the Cournot case of quantity competition.
