The cartel may not be able to maximise joint profits by not charging a very high price for fear of government interference and regulation. Such a price must allow them some profits.
This will ultimately lead to the breaking up of the market sharing agreement. Non-Price Competition in Oligopoly 1.
Changes in costs and demand also lead to price stability under normal conditions so long as the MC curve intersects the MR curve in its discontinuous portion. The individual firms surrender their price-output decisions to this central board.
The former is known as: There is a tacit agreement among the firms to sell the product at a price set by the leader of the industry i.
The barometric price leadership is that in which there is no leader firm as such but one firm among the oligopolistic firms with the wisest management which announces a price change first which is followed by other firms in the industry. Price leadership is of various types.
There is no product differentiation. The low-cost firm model is based on the following assumptions: Joint profits are generally more than the total profits earned by them if they were to act independently. But if firm sticks to OP price, its sales will be zero because the product being homogeneous, all its customers will shift to firm A.
Price leadership is of three types: Therefore, the existence of various forms of oligopoly prevents the development of a general theory of price and output. Further, a purpose of competition law, particularly South African competition law as is made clear in s 2dictates that a history of such state largesse cannot be permitted to subvert competition nor should the market power inherited from the erstwhile status as a state enterprise be exerted with continued impunity.
A price war will start and ultimately the lowest-cost firm will remain in the industry. Price Determination under Oligopoly 3.
The kinked demand curve hypothesis of price rigidity is based on the following assumptions: The market demand curve for the product is given and known to the cartel. Firm A would become a monopoly firm.
As under monopoly, the cartel board will allocate the industry output by equating the industry MR to the marginal cost of each firm. business strategy and pricing.
Collusive Oligopoly: Price and Output Determination under Cartel! In order to avoid uncertainty arising out of interdependence and to avoid price wars and cut throat competition, firms working under oligopolistic conditions often enter into agreement regarding a uniform price.
Price And Output Determination Oligopoly In Pdf. Briefly outline some of the main models of oligopoly in which firms compete according to output. Hence, discuss the contention that non-collusion is the inevitable outcome of oligopoly. Given these assumptions, the price-output relationship in the oligopolist market is explained in Figure 1 where KPD is the kinked demand curve and OP 0 the prevailing price in the oligopoly market for the OR product of one seller.
Price Determination in Non-Collusive Oligopoly: In this case, each firm follows an independent price and output policy on the basis of its judgment about the reactions of his rivals. If the firms are producing homogeneous products, price war may occur. Price Determination in Non-Collusive Oligopoly: In this case, each firm follows an independent price and output policy on the basis of its judgment about the reactions of his rivals.
If the firms are producing homogeneous products, price war may occur.Price and output determination oligopoly in pdf