Question

Why is the economic analysis of oligopoly so difficult? What two generalizations can be made about the pricing behavior (or decision process) of oligopolists?

Answer 1

oligopoly is market structure where few industries supply the whole market. every industry has some market power and they can influence there price and quantity supply according to the demand conditons. the problem with oligopolist market is that the industries are inter dependent because they produce similar product and the pricing decision of one firm affects the pricing decission of the other so they cannot take pricing and quantity decisions independently and it makes it difficult to analyse the oligopolistic market.

the following two generalisation can be made about the oligopolists market structure-

1)the interdependence of the firm

2) the naive behaviour of the firms- some times like in some oligopolistic market structure for example in cournot nad bertand model they dont realise the interdependence and keep on taking there rival firms price or quantity as constant so naive behaviour of the firms is also another characteristic.