Question

why is there emphasis on non price competition in oligopoly markets than on lowering prices to gain market share?

Answer 1

In an oligopolistic market structure there are few firms selling identical products. As a result of this, if a firm resorts to lower its prices to get more of the market share, the rest of the firms in the industry will follow the same path and lower their respective prices to avoid losing or shifting of market share from them to the first firm. This will wage a price war between firms as they will continue to lower prices and gain more market share. But if a firm increases its prices, no other firm will follow it for obvious reasons.

This is because that the size of each firm in the industry is so large that the decisodeof one individual firm impacts all others as they are also few in numbers. They have the knowledge of the actions of their rival firms and react instantly to any of their strategic change.

The price war that resukts from lowering prices in an oligopolistic market structure makes the firms prone to huge losses if their actions are not diverted. This results in a mutual interdependence between firms and they resort to healthy competition instead of price competition. They also form cartels in order to maximize their profits.