In a Cournot competition scenario with two firms, if both firms set their quantities based on the kinked demand curve, what is the likely outcome regarding their pricing strategy relative to the Nash Equilibrium?

In a Cournot competition, firms choose how much to produce, and their decisions affect the market price. When both firms use a kinked demand curve, they might be hesitant to change their prices because they expect that if one firm lowers its price, the other will follow, leading to lower profits for both. This creates a situation where prices tend to be stable and do not change much, even if costs or demand shift. For example, if Firm A and Firm B both produce a certain quantity and set their prices based on the kinked demand curve, they might find themselves in a stable price environment that is higher than what would be expected in a Nash Equilibrium, where each firm would typically lower prices to gain market share. Therefore, the kinked demand curve suggests that firms may maintain higher prices and avoid aggressive competition, leading to less variation in pricing than what might occur under a typical Nash Equilibrium scenario.