Question

The fact that the firms in an oligopoly are mutually interdependent means that each firm: must consider the reactions of its competitors when it sets the price for its output. produces a product that is similar, but not identical, to the products of its competitors. faces a perfectly elastic demand curve for its product. produces a product that is identical to the products of its competitors.

Answer 1

Answer:

An oligopoly is a market structure, included within the forms of imperfect competition, consisting of a small group of strategically interdependent suppliers (producers / sellers) and a large number of claimants (consumers / buyers), in which the suppliers have a sufficient market power to set prices and quantities, assimilating to monopoly.

Explanation:

Characteristics:  Freire and Blanc (p.129) point out the most outstanding characteristics of the oligopoly as follows:

-There are a small number of producers: which have the power to decide price and quantity.

-The product is homogeneous: or failing that with little differentiation.

-There is a great interdependence between the companies of the oligopoly: establishing different relationships between the companies that form it.

There are two types of relationships between your companies:

-Collusive behavior. It is when companies reach an agreement to act jointly deciding the price, the quantity, the distribution of the market, etc. In this case they can behave like a monopoly. It is the most likely situation.

-Non-collusive behavior. Companies compete with each other and adopt strategic positions (analysis through the so-called «Game Theory»). It is the least likely situation.

Now Tucker (p.195) suggests that the three fundamental characteristics of an oligopoly are:

-Few sellers. This condition is reached when few companies are so large in relation to the total market that they can affect the market price.

-Homogeneous or differentiated product. Buyers in an oligopoly may or may not be indifferent to the seller of the product they buy.

-Difficulty entering the market. The most important barrier is the economies of scale achieved by large companies.

They could then summarize in four the number of characteristics of the oligopolistic market, namely:

(1) Few producers / sellers with market power

; (2) Homogeneous or differentiated products;

(3) Business interdependence; and (4) Strong barriers to entry.

The Coca Cola drink is a perfect example of oligopoly, since there are different brands of soda on the market but none like this.