Multiple Choice
A distinguishing feature of an oligopolistic industry is the tension between:
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14. Oligopoly
Characteristics of Oligopoly
Multiple Choice
Why are oligopolies strategically interdependent?
A
Because there are many small competitors and no single firm's actions affect the market price.
B
Because government agencies centrally plan outputs and force firms to coordinate strategies.
C
Because firms always produce identical products so they cannot compete on features, which creates interdependence.
D
Because each firm's optimal decision depends on how its rivals will react, so firms must anticipate competitors' responses when setting price or output.
Verified step by step guidance1
Understand the concept of strategic interdependence in oligopolies: it means that the decisions of one firm directly affect and are affected by the decisions of other firms in the market.
Recognize that in an oligopoly, there are only a few firms, so each firm holds a significant market share and their actions influence the market environment.
Note that because firms are few and large, each firm's optimal choice of price or output depends on the expected reactions of its competitors.
Realize that this interdependence leads firms to anticipate and strategically respond to rivals' moves, such as changes in price, output, or product features.
Conclude that this mutual anticipation and reaction is why oligopolies are strategically interdependent, unlike markets with many small firms or centrally planned outputs.
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