Why demand curve under oligopoly is indeterminate?

Indeterminate Demand Curve:

Due to the interdependence, an oligopolitic firms cannot have a definite demand curve since it keeps shifting in response to the reactions of rivals.

Why is the demand curve of oligopoly is indeterminate?

Firm's demand curve is indeterminate under oligopoly because there is a high degree of interdependence among 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.

What is indeterminate demand curve?

Indeterminate Demand Curve: Implies that the demand curve is unknown under oligopoly due to different behavior patterns of organizations. Under oligopoly, every organization keeps an eye on the actions of rivals and makes strategies accordingly.

Under which market demand curve is indeterminate?

Under oligopoly, the firm's demand curve is indeterminate.

Why demand curve in oligopoly is downward sloping?

In monopolistic competition, firms try to differentiate their products and by doing so gain some degree of market power, reflected in the ability in varying its price somewhat. Hence the demand curves for those firms will be downward sloping, too.

Indeterminate Price

What is the demand curve for oligopoly?

Answer: In an oligopolistic market, the kinked demand curve hypothesis states that the firm faces a demand curve with a kink at the prevailing price level. The curve is more elastic above the kink and less elastic below it. This means that the response to a price increase is less than the response to a price decrease.

What does a demand curve look like for an oligopolistic firm?

Customers might purchase less efficient products that cost more. What does a demand curve look like for an oligopolistic firm? B. It will always be U-shaped.

Why is price indeterminate?

When supply and demand both shift, either price or quantity will be indeterminate. When supply and demand move in the same direction, price is indeterminate. That is because an increase in supply decrease price while an increase in demand will increase price.

What are the characteristics of oligopoly?

How oligopoly is different from monopoly?

A monopoly is when a single company produces goods with no close substitute, while an oligopoly is when a small number of relatively large companies produce similar, but slightly different goods. In both cases, significant barriers to entry prevent other enterprises from competing.

What is price rigidity under oligopoly?

Firms under oligopoly are in a position to influence prices. However, they try to avoid price competition for fear of a price war. They follow the policy of price rigidity. Price rigidity refers to a situation in which the price remains constant despite changes in demand and supply conditions.

What is oligopoly in economics?

Oligopoly markets are markets dominated by a small number of suppliers. They can be found in all countries and across a broad range of sectors. Some oligopoly markets are competitive, while others are significantly less so, or can at least appear that way.

Under what the firm faces a kinked indeterminate demand curve?

Under this type of market, the demand curve is indeterminate which is known as a kinked shaped demand curve due to the high interdependence of firms on to each other because of which the decision of each firm keeps changing continuously.

Is price determinate in an oligopoly market?

(1) The oligopolistic industry consists of a large dominant firm and a number of small firms. (2) The dominant firm sets the market price. (3) All other firms act like pure competitors, which act as price takers. Their demand curves are perfectly elastic for they sell the product at the dominant firm's price.

Who gave the concept of kinked demand curve?

The kinked demand curve was developed by American economist Paul Sweezy and has become crucial in oligopoly theory. It illustrates the interdependent behaviour of firms in oligopolistic market structures. The kinked demand curve illustrates the interdependence of firms in an oligopoly market.

Why are oligopolies interdependent?

Firms operating under conditions of oligopoly are said to be interdependent , which means they cannot act independently of each other. A firm operating in a market with just a few competitors must take the potential reaction of its closest rivals into account when making its own decisions.

How does the kinked demand curve explains price rigidity in oligopoly?

The kinked-demand curve model (also called Sweezy model) posits that price rigidity exists in an oligopoly because an oligopolistic firm faces a kinked demand curve, a demand curve in which the segment above the market price is relatively more elastic than the segment below it.

What is oligopoly explain any four features of oligopoly?

An oligopoly is an industry which is dominated by a few firms. In this market, there are a few firms which sell homogeneous or differentiated products. Also, as there are few sellers in the market, every seller influences the behavior of the other firms and other firms influence it.

What are the assumptions of oligopoly?

The basic assumptions for this model of oligopoly often referred to a cartel or a collusion oligopoly is that the firms sell identical goods and agree to keep the price and quantity produced constant. In doing so, the firms establish a monopolistic market despite there being multiple firms which hold the market power.

What is indeterminate equilibrium?

In statics and structural mechanics, a structure is statically indeterminate when the static equilibrium equations – force and moment equilibrium conditions – are insufficient for determining the internal forces and reactions on that structure.

Is a price ceiling binding or nonbinding?

In general, a price ceiling will be non-binding whenever the level of the price ceiling is greater than or equal to the equilibrium price that would prevail in an unregulated market. For competitive markets like the one shown above, we can say that a price ceiling is non-binding when PC >= P*.

In which cases will the effect on equilibrium output be indeterminate?

The combined effect is that the price of jewelry increases, and the equilibrium quantity change is indeterminate. Note that when both demand and supply shift, one variable (price or quantity) experiences a definite change, and the other is indeterminate (unless you know the magnitude of the shifts).

What does a demand curve look like for an oligopolistic firm multiple choice question?

What does a demand curve look like for an oligopolistic firm? It could be downward sloping or kinked. An oligopolistic firm's marginal revenue curve is made up of two segments if ______. Suppose the rivals of an oligopolistic firm ignore both a price increase and decrease.

What are the limitations of kinked demand curve?

Drawbacks of Kinked Demand Curves

First, it does not explain the mechanism of establishing the kink in the demand curve. It also does not state how the kinked demand curve is reformed when price/quantity changes. Most of the time, other oligopolists follow pricing decisions when one oligopolist increases the price.

Is price and output under oligopoly indeterminate?

There is no general theory which can explain pricing and output decisions in all kinds of oligopoly situations. Thus, it is said that price and output under oligopoly is indeterminate. It is due to interdependence of other firms and absence of well defined goods.