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Kinked Demand Curve Theory:
It shows why prices in oligopolistic markets tend to remain stable, and why price competition creates price wars so firms compete on non-price factors instead.
Price is at P on the graph. If one firm raised their price, other firms will lower there price and capture market share from the firm that initially raised its price. This is because more consumers are likely to buy from the firms with a low price rather than high price. So a rise in price results in a bigger fall in demand - ELASTIC demand. This means LOWER REVENUES for the firm that raised prices.
If one firm lowered their price, because of interdependence, other oligopolies will also lower their price so as not lose their market share. Therefore firms will be competing on price which means all firms' revenues will be lowered. A decrease in price creates a smaller increased in demand - INELASTIC demand.
Therefore, by lowering/raising firms will lose out either way, Therefore, in order to avoid price wars prices remain stable and firms use non-price competition (or firms may collude to create monopoly power).
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What is the purpose of competition in economics?
Competition decreases the risks of monopolies and oligopolies from forming. When there's competition, there are more firms that are producing goods/services, so an individual firm can't pick whatever price they want. They must consider what their competitors will charge. Also, some firms may want to supply a small quantity at high prices. Competition forces firms to produce more at a lower price.
What are the three practice of oligopolies that concern the government the most?
Price Fixing, Collusion, And Cartels
Compare and contrast price vs non-price competition?
Price competition refers to as who will sell for the lowest price. Meanwhile, non-price competition refers to the person who can sell the most attractive product.
How do firms engage in price competition?
Firms might engage in price competition by advertising that they offer the lowest price on selected merchandise. Price competition lowers the selling price of the good, relative to competitors' prices.-From Usatestprep.com
Distinguish perfect competition and imperfect competition?
In imperfect competition the producer is the price maker. Whereas in perfect the producer is the price taker meaning there are many producers and no one can influence the price.
What is the purpose of competition in economics?
Competition decreases the risks of monopolies and oligopolies from forming. When there's competition, there are more firms that are producing goods/services, so an individual firm can't pick whatever price they want. They must consider what their competitors will charge. Also, some firms may want to supply a small quantity at high prices. Competition forces firms to produce more at a lower price.
What are the three practice of oligopolies that concern the government the most?
Price Fixing, Collusion, And Cartels
What are the three practicing of oligopolies that concern the government the most?
Price Fixing, Collusion, And Cartels
What effect does competition have on price and why?
Competition will lower the price of products
What has the author Pekka Ilmakunnas written?
Pekka Ilmakunnas has written: 'Identification and estimation of the degree of oligopoly power in an industry facing domestic and import competition' -- subject(s): Competition, Mathematical models, Oligopolies
The creation of trusts resulted in prices.?
The creation of trusts led to monopolies and oligopolies, which often resulted in higher prices for goods and services due to reduced competition in the market. Trusts could dominate entire industries and stifle competition, leading to increased control over pricing. This concentration of power led to concerns over consumer welfare and the need for antitrust legislation to prevent price manipulation and promote fair competition.
Compare and contrast price vs non-price competition?
Price competition refers to as who will sell for the lowest price. Meanwhile, non-price competition refers to the person who can sell the most attractive product.
How do firms engage in price competition?
Firms might engage in price competition by advertising that they offer the lowest price on selected merchandise. Price competition lowers the selling price of the good, relative to competitors' prices.-From Usatestprep.com
Distinguish perfect competition and imperfect competition?
In imperfect competition the producer is the price maker. Whereas in perfect the producer is the price taker meaning there are many producers and no one can influence the price.
Why do Firms trying to avoid competition?
Firms try to avoid competition so that they can set higher profits and earn greater profits.
Advantages of Competition Based Pricing?
what are the advantage of competition based price
What is McDonald's Market structure?
Oligopolies
