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| 1. |
What is meant by prices being rigid? How can oligopoly behaviour lead to such an outcome? |
| Answer» Solution :Prices being rigid or price rigidity refers to a SITUATION in which price tends to stay fixed irrespective of changes in demand and supply conditions. In an oligopolistic market, firms are in a position to influence the prices. However, they stick to their prices in order to avoid a price war. If a firm tries to reduce the price, the RIVALS will also react by reducing their prices. So, it will be of no benefit. Likewise, if a firm tries to raise the price, other firms might not do so. As a RESULT, the firm which intended to raise the price will lose its CUSTOMERS. So, oligopoly BEHAVIOUR leads to price rigidity in an oligopolistic market | |