What is meant by prices being rigid? How can oligopoly behaviour lead to such an outcome?
Answers
Answer:
Explanation:Answer to the first part of the question.
The term Price rigidity ( also known as price stickiness or sticky prices) refers to an environment where prices of a product responds slowly in lieu of shortages or surpluses in the market.
Answer to the second part of the question.
An oligopoly market refers to a market situation which is characterized by dominance of small number of firms making large sells(oligopolist).
Since the number of sellers are few in numbers, each oligopolist keeps a track on each other action as a result any decision taken by one firm influence and are also influenced by other competitor.
Price rigidity under oligopoly market remains constant or fixed irrespective of change in cost and demand in the industry. The firm often follow the path of sticking to existing price, as they think any rise in the product price may not be followed by other firms whereas any cut in price may lead to same by the rival firms.Therefore this behaviour of firm, of keeping the current price unchanged is referred as price rigidity.
Hope this helps.
Explanation:
“Price rigidity” means that despite the change in demand and cost in the industry, the price under the oligopoly becomes fixed or stable. Firms under an oligopoly believe that if they raise the price, the opponents will not follow it, but if companies cut the price, then rival companies will do the same. Thus, the elite units prefer to stay at the current cost. To maintain the present value, this behavior of elite firms is called as rigidity.