ECONOMICS
COMPETITION AND MARKET STRUCTURES
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
True
|
|
|
False
|
|
|
Either A or B
|
|
|
None of the above
|
Detailed explanation-1: -Price rigidity is the price of the product fixed after deliberations and negotiations by the oligopolistic firms, to which they generally stick with a view to avoid any sort of price war.
Detailed explanation-2: -It is partly caused by differences in the nature of the demand for them, not so much dif-ferences in elasticity in the usual sense, as changes in demand resulting from changes in the public’s purchasing power.
Detailed explanation-3: -Hence, oligopolistic industries are characterized by a few dominant firms and substantial barriers to entry. There is also a price stickiness seen in oligopoly. Hence, under oligopoly, price rigidity is often predicted.
Detailed explanation-4: -As can be seen above, a firm cannot gain or lose by changing its price from the prevailing price in the market. In both cases, there is no increase in demand for the firm which changes its price. Hence, firms stick to the same price over time leading to price rigidity under oligopoly.