Question

Explain the feature and implication of 'Interdependency' of oligopoly market
structure.​

Answer 1

Inter-dependence between firms: Under oligopolistic market form, there exists few but large and dominating firms. These firms account for majority of market supply, thereby control the market price and quantity of the output. There exists a very high degree of mutual interdependence between the firms in an oligopoly market. The price and the quality decisions of a particular firm are dependent on the price and the quality decisions of the rival (other) firms. This feature has an important implication that no firm can fix Its price and output decisions without considering the probable reactions of other firms.