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InterviewSolution
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What is meant by prices being rigid ? How can oligopoly behaviour lead to such an outcome ? |
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Answer» Price being rigid means that oligopolist firms are unwilling to change the price i.e., market price does not move freely in response to changes in demand. Once a price has been determined, a firm will avoid changing it. If a firm in oligopoly market reduces its price, its rivals will feel drain on their customers and, consequently will follow this price cut. The ultimate result will be that there will not be a significant increase in the sales of the firm. If an oligopolist firm raises its price, its rivals may not follow it. Sales of the rivals will increase. As a result of price rise, the oligopolist firm will have lesser sales while its rivals’ sales will increase. Hence, an oligopolist firm will be extremely unwilling to change its price because neither a price increase nor a price reduction will be beneficial for the oligopolist firm. |
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