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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).
What else can I help you with?
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
Why do oligopolies exist. List five or six oligopolist whose products you own or regularly purchase what distingushes oligopoly from monopolistic comprtion?
Oligopolies exist due to high barriers to entry, such as significant capital requirements and economies of scale, which limit the number of firms in a market. Additionally, established companies may engage in strategic behavior, such as price-setting and non-price competition, to maintain their market positions. Examples of oligopolists whose products many people might regularly purchase include Coca-Cola, Nike, Ford, Samsung, and Intel. Oligopoly is distinguished from monopolistic competition by the few firms in the market that dominate pricing and output decisions, as opposed to many firms that compete on price and product differentiation in monopolistic competition.
How do market structures impact a firms ability to control price?
Market structures significantly influence a firm's ability to control price through the level of competition and the number of market participants. In monopolistic markets, a single firm can set prices due to lack of competition, while in perfectly competitive markets, firms are price takers and must accept the market price. Oligopolies may allow for some price control through collusion or price leadership among a few dominant firms. Ultimately, the structure dictates the extent of pricing power a firm possesses.
Inefficiency issue of oligopolies?
Oligopolies can lead to inefficiency due to limited competition, which may result in higher prices and reduced output compared to perfectly competitive markets. Firms in an oligopoly may engage in collusive behavior, such as price-fixing or market-sharing, further stifling competition and innovation. Additionally, the market power held by a few dominant firms can lead to a misallocation of resources, as they prioritize profit maximization over consumer welfare. This inefficiency ultimately restricts consumer choice and can hinder overall economic growth.
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 practicing of oligopolies that concern the government the most?
Price Fixing, Collusion, And Cartels
What are the three practice 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
Why do oligopolies exist. List five or six oligopolist whose products you own or regularly purchase what distingushes oligopoly from monopolistic comprtion?
Oligopolies exist due to high barriers to entry, such as significant capital requirements and economies of scale, which limit the number of firms in a market. Additionally, established companies may engage in strategic behavior, such as price-setting and non-price competition, to maintain their market positions. Examples of oligopolists whose products many people might regularly purchase include Coca-Cola, Nike, Ford, Samsung, and Intel. Oligopoly is distinguished from monopolistic competition by the few firms in the market that dominate pricing and output decisions, as opposed to many firms that compete on price and product differentiation in monopolistic competition.
How do market structures impact a firms ability to control price?
Market structures significantly influence a firm's ability to control price through the level of competition and the number of market participants. In monopolistic markets, a single firm can set prices due to lack of competition, while in perfectly competitive markets, firms are price takers and must accept the market price. Oligopolies may allow for some price control through collusion or price leadership among a few dominant firms. Ultimately, the structure dictates the extent of pricing power a firm possesses.
Inefficiency issue of oligopolies?
Oligopolies can lead to inefficiency due to limited competition, which may result in higher prices and reduced output compared to perfectly competitive markets. Firms in an oligopoly may engage in collusive behavior, such as price-fixing or market-sharing, further stifling competition and innovation. Additionally, the market power held by a few dominant firms can lead to a misallocation of resources, as they prioritize profit maximization over consumer welfare. This inefficiency ultimately restricts consumer choice and can hinder overall economic growth.
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.
What are the four characteristics of oligopolies?
Oligopolies are characterized by a small number of firms that dominate the market, leading to limited competition. These firms produce similar or identical products, which can lead to price interdependence; the actions of one firm directly influence the others. Barriers to entry are typically high, making it difficult for new competitors to enter the market. Additionally, firms in an oligopoly may engage in collusion, either explicitly or implicitly, to set prices or output levels.
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
