The critical problem faced by a firm in an oligopoly is that its decisions affect the prices and quantities of its rivals. The oligopoly problem arises because, where there are only a few suppliers to the market; the demand for the product of one firm depends significantly on the price and output. A non-cooperative duopoly is an industry consisting of two firms in which firms take their decisions independently and can be classified according to …showed first 75 words of 2138 total…

…showed last 75 words of 2138 total…' However firm 1 anticipating firm 2's response would be obliged to set a zero price. Thus the equilibrium would involve zero prices. As the firm knows that it will be undercut when it sets a +ve price and therefore sets price=0. With differentiated products, the equilibrium of price leadership is consistent with +ve profits. Since there is a 2nd mover advantage, why would one firm elect to set price before the other firm does so.