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"Discuss the proposition, 'Oligopolists prefer stable prices', and consider the possible implications for their overall behaviour."
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"Discuss the proposition, 'Oligopolists prefer stable prices', and consider the possible implications for their overall behaviour." When discussing the price stability in an oligopolistic market, one can assume that there are about 4-5 firms involved. The key feature of an oligopoly is that the firms are interdependent. This means that the action of one firm affects its rivals. For example, if a firm changes the price of its product, the sales of its rivals will be affected. There are two methods of looking at how the oligopolistic market works. First of all one can use theory of non-collusive oligopoly. This involves looking at the kinked demand theory that was developed in the late 1930's. The kinked demand curve shows us why prices for a certain product within a market will remain fairly stable when there is no collusion between the firms. Two assumptions can be made for this graph. * If...
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