Firm A and Firm B are duopolists. They are choosing the price for which they will sell their products and the quantity they will sell. Both firms make their decisions simultaneously. The _________ in this situation occurs when Firm B chooses a pricing strategy given the strategy that Firm A chooses, and Firm A chooses a pricing strategy given the strategy that Firm B chooses.

Question

Quizplus · Accepted Answer

The situation described is a classic example of a Nash equilibrium, which occurs when both firms choose their best strategy given the other firm's choice, and neither has an incentive to change their strategy unilaterally. This is the most likely outcome in a duopoly situation. Antitrust equilibrium, Von Neumann equilibrium, Morgenstern equilibrium, and cartel equilibrium are not typically used to describe duopoly pricing strategies.

Firm a and Firm B Are Duopolists