how does the model illustrate oligopolistic interdependence

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Expert Solution

It is the kinked demand curve model of oligopoly market , that illustrates the oligopolistic interdependence among the firms. As per this model, when one firm decreases the price, then all other firms decrease the price. It means that no firm gain the advantage of decrease in price and there market share remains same. But, when one firm increases the price, then no other firms respond and they do not increases the price. It makes firm to be in losses that has increased the price. So, one firm is depending upon the others and vice versa, creating interdependence in oligopolistic market.

Besides, the model explains that there is a kink in the firm level demand curve. Above the kink in the demand curve, demand is more elastic in nature, making firm not to increase the price. But, below the kink, demand is less elastic, so there is no benefit to decrease the price. Hence, firm has to be dependent upon other firms as far as pricing strategy is concerned.

Rahul Sunny answered 2 months ago

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