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Explain the implications of the following in an oligopoly market: (i) Interdependence between firms (ii) Barriers to the entry of new firms

Answer» <html><body><p></p>Solution :(i) when there are only a few firms in a market, it islikely that each has some <a href="https://interviewquestions.tuteehub.com/tag/knowledge-25694" style="font-weight:bold;" target="_blank" title="Click to know more about KNOWLEDGE">KNOWLEDGE</a> as to how its rivals <a href="https://interviewquestions.tuteehub.com/tag/operate-586874" style="font-weight:bold;" target="_blank" title="Click to know more about OPERATE">OPERATE</a>. Each firms expect reaction from its rival firms. Therefore each firms, in deciding price and output, takes into account the expected reactions by its rivals.In this way firms are interdependent on each other.<br/> (ii) The main reason why the <a href="https://interviewquestions.tuteehub.com/tag/number-582134" style="font-weight:bold;" target="_blank" title="Click to know more about NUMBER">NUMBER</a> of firms is small is that there are barriers which prevent <a href="https://interviewquestions.tuteehub.com/tag/entry-972873" style="font-weight:bold;" target="_blank" title="Click to know more about ENTRY">ENTRY</a> of firms into industry. Patents,large capital requirement, control over crucial raw materials, <a href="https://interviewquestions.tuteehub.com/tag/etc-975753" style="font-weight:bold;" target="_blank" title="Click to know more about ETC">ETC</a> prevent new firms from entering into industry. Such barriers make an industry oligopoly.</body></html>


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