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Which of the following is NOT a characteristic of oligopoly?
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14. Oligopoly
Characteristics of Oligopoly
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Which of the following best represents the pricing behavior of firms in an oligopolistic market?
A
Firms are interdependent and often consider rivals' reactions when setting prices.
B
Firms always act as price takers, accepting the market price.
C
Firms set prices independently without regard to competitors.
D
Firms can freely enter and exit the market, leading to perfectly competitive pricing.
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Step 1: Understand the characteristics of an oligopolistic market. In such a market, there are a few dominant firms, and each firm's decisions affect the others.
Step 2: Recognize that because firms are few and large, they are interdependent. This means each firm must consider how rivals might react when it changes prices or output.
Step 3: Contrast this with perfect competition, where firms are price takers and cannot influence the market price, and with monopoly or monopolistic competition, where firms have different pricing behaviors.
Step 4: Analyze the given options and identify that the statement 'Firms are interdependent and often consider rivals' reactions when setting prices' aligns with the key feature of oligopoly pricing behavior.
Step 5: Conclude that in oligopolistic markets, firms do not set prices independently or accept market prices passively; instead, they strategically consider competitors' potential responses.
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