ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In an oligopoly market, there is a small number of big firms. Accordingly, there is a high degree of mutual interdependence, implying that price and output policy of one firm has a significant impact on the price and output policy of the rival firms in the market.

Detailed explanation-2: -The reason behind the interdependence in an oligopoly market is that there are few firms who compete with each other by following the strategy of other firms and they make their own decision of price and quantity based on the decision of other firms.

Detailed explanation-3: -Answer: In an oligopoly, firms act interdependently, meaning they are aware of each other’s actions and must consider the reactions of their competitors when making decisions.

Detailed explanation-4: -Interdependence means that the firms in the market must take into account the likely reactions of their rivals to any change in price, output or forms of non-price competition. It is a key aspect of business competition and behaviour in an oligopoly and can be modelled by the use of game theory.

Detailed explanation-5: -Their interdependence means that they are also likely to change their prices according to their competitors. For example, if Coca-Cola changes its price, Pepsi is also likely to do the same. Oligopolies exist worldwide and may, in fact, be increasing in prevalence over time.