Question

Explain the features interdependence of firms in an oligopoly market.

Answer 1

Interdependence of firms in an oligopoly market-In an oligopoly market, there is a small number of big firms. Accordingly, there is a high degree of mutual interdependence. Implying that, price and output policy of one firm has a significant impact on the price and output policy of the rival firms in the market. When one firm lowers its price the rival firms may also lower the price. And, when one firm raises its price, the rival firms may not do so. It is because of the interdependence that it becomes very difficult to estimate change in firm's sales caused by a change in price. Implying that a precise relationship between price and sales cannot be established or, that the firm's demand curve can not be drown.