Question

What do you mean by price rigidity. Write a short note on price rigidity.

Answer 1

Price rigidity is an important feature of obligopoly. It is important to note that under oligopoly, firms would not like to change the prices. It is so because any change in price by an oligopolistic firm will not be beneficial for the firm, therefore, it will stick to its price. If a oligopolistic firm tries to reduce the price, the competitors will also retaliate by reducing their prices. Therefore, reducing price will not be of any advantage to it. Similarly, if a oligopolistic firm tries to increase its price, other oligopolistic firms will not to do so. Consequently, the former firm will lose its customers and incur loss. Therefore, there is price rigidity in an oligopolistic market.

Price rigidity is an important feature of obligopoly.