In the Cournot model, firms focus on choosing output levels. An alternative possibility is that firms might focus on choosing product price.13 Here, the Nash equilibrium is for both firms to choose a price equal to marginal cost—the competitive out- come. To see why, suppose one of the firms chooses a price, P MC. In this case, it is optimal for the rival firm to charge a price just below P to capture all industry sales. (Since we assume the firms’ products are identical, customers buy the product from the firm that offers the lower price.) Given that the second firm charges a price just below P , it is now optimal for the first firm to charge a slightly lower price. This process continues; only when price equals marginal cost does neither firm have an incentive to lower price. (Lowering price further would result in selling below cost, thus generating a loss.) Of course, both firms would like to devise a way of avoiding competition and capturing higher profits. Yet as we discuss below, fostering cooperation can be difficult—and in certain cases, illegal.