In oligopoly price rigidity means once equilibrium

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In oligopoly, price rigidity means, once equilibrium price is determined by sellers (which are few in numbers and are interdependent in their behavior). After that no one, wants to change for simple reasons: 1. If one is going to increase the price, then others will grab the market share without doing the same. 2. If one is going to decrease the price, then everyone will follow the same 3. Ultimately, in both cases the profit maximization condition will not be satisfied. 4. So, in oligopoly price becomes rigid nobody wants to change it. The graph shows The AR curve is relatively elastic from P* to P 1 and relatively inelastic P 1 onwards.
The Oligopolist sets price to P 1 initially. When the curve is relatively elastic, if a firm in the market increases the price , other firms will not follow because the resulting fall in demand is greater than the proportionate change in price. The firm loses too much demand to attract other firms to follow. When the curve is relatively inelastic , if a firm lowers the price , other firms will follow because they benefit from the resulting increase in demand. Even though the resulting increase in demand is lower than the fall in price, firms benefit because consumers ‘shop around’ for lower prices; if Tesco are selling a notebook for £1 and Asda are selling a notebook for 80p, provided that Asda is just as accessible as Tesco, the consumer may decide to shop at Asda instead. This is under the assumption that the oligopoly market competes on price. If this happens, a price war may result. With this price rigidity a discontinuity exists along a vertical line above output Q1 between the two marginal revenue curves associated with the relatively elastic and inelastic demand curves. Costs can rise or fall within a certain range without causing a profit-maximizing Oligopolistic to change either the price or output. At output Q1 and price P1 MC=MR. Note how marginal costs can fluctuate between MC1 and MC3 without the equilibrium quantity or price changing. Oligopoly Competition Market Structure apply in business activity:- Company A and Company B are responsible for the 90% of the water produced in Orange County. If Company B raises its prices, consumers most likely will shift to Company A for their water provision. But, if Company A raises its prices too, then both Companies will control the entire water market through their pricing setting ability.
Computer Operating Systems New high tech markets can become oligopolies when the companies provide unique products that are supported by an ecosystem of supporting technology. Computer operating systems in 2012 are dominated by Microsoft's Windows, Apple's Mac OS and the open source Linux operating system. These three systems capture close to 100 percent of the computer operating system market due to their established positions, according to the Stat Owl website. All other software providers make programs that are compatible with these systems, further reinforcing the dominance of the major players

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