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Price setting: Firms in an oligopoly market structure tend to set prices rather than adopt them. [ 22 ] High barriers to entry and exit: [ 23 ] Important barriers include government licenses, economies of scale , patents, access to expensive and complex technology, and strategic actions by incumbent firms designed to discourage or destroy ...
Oligopoly refers to a market structure where only a small number of firms operate together control the majority of the market share. Firms are neither price takers or makers. Firms tend to avoid price wars by following price rigidity. They closely monitor the prices of their competitors and change prices accordingly.
In economics, nominal rigidity, also known as price-stickiness or wage-stickiness, is a situation in which a nominal price is resistant to change. Complete nominal rigidity occurs when a price is fixed in nominal terms for a relevant period of time. For example, the price of a particular good might be fixed at $10 per unit for a year.
Oligopoly: If the industry structure is oligopolistic (that is, has few major competitors), the players will closely monitor each other's prices and be prepared to respond to any price cuts. [ 8 ] Applying game theory , two oligopolistic firms that engage in a price war will often find themselves in a kind of prisoner’s dilemma .
A kink in an otherwise linear demand curve. Note how marginal costs can fluctuate between MC1 and MC3 without the equilibrium quantity or price changing. The Kinked-Demand curve theory is an economic theory regarding oligopoly and monopolistic competition. Kinked demand was an initial attempt to explain sticky prices.
There are different ways of measuring nominal rigidity in an economy. There will be many firms (or price-setters), some tend to change price frequently, others less so. Even a firm which changes its "normal" price infrequently might make a special offer or sale for a short period before returning to its normal price.
In microeconomics, the Bertrand–Edgeworth model of price-setting oligopoly looks at what happens when there is a homogeneous product (i.e. consumers want to buy from the cheapest seller) where there is a limit to the output of firms which are willing and able to sell at a particular price. This differs from the Bertrand competition model ...
In oligopoly theory, conjectural variation is the belief that one firm has an idea about the way its competitors may react if it varies its output or price. The firm forms a conjecture about the variation in the other firm's output that will accompany any change in its own output.