Explain why firms are mutually interdependent in an oligopoly mar… - Vidyadip

Question

Explain why firms are mutually interdependent in an oligopoly market.

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Answer

Under oligopoly, there is a high degree of interdependence between the firms. Price and output policy of one firm has a significant impact on the price and output policy of the rival firms in the market.
When one firm lowers its price, the rival firms may also lower the price. And when one firm raises the price, the rival firms may not do it. Accordingly, while taking an action on price or output, a firm must take into account the possible reaction of the rival firms in the market.

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