ECON 1 Lecture Notes - Lecture 19: Oligopoly

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Diversity of oligopolies- encompasses a greater range and diversity of market situations than do other market structures. The tight market in which two or three firms dominate and the loose in which six or eight or a competitive fringe of firms shares the remainder. Complications of interdependence- the mutual interdependence complicates matters, because firms cannot predict the reactions of rivals with certainty. The kinked demand curve- non- collusive oligopoly. Firms match price changes of rivals it will neither lose or gain customers. However, if all firms cut prices will gain customers from similar industries. Airlines cut fares, and will obtain customers traveling by other means. Ignore price changes- the demand curve is more elastic and a firm will gain customers by not increasing prices. Product differentiation will protect its market share when it increases the prices to match rivals. The non collusive demand is highly elastic above the going price and less or inelastic below that price.

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