Question

Which of the following is a feature of Sweezy oligopoly?

		There are many firms in the market serving few consumers.
		The firms produce homogeneous products.
		Each firm believes that rivals will cut their prices in response to a price reduction, but will not raise their prices in response to a price increase.
		Barriers to entry are low.

Please help/ Explain. Thank you

Answer 1

The correct option is C) Each firm believes that rivals will cut their prices in response to a price reduction, but will not raise their prices in response to a price increase.

The Sweezy model, or the kinked demand model, shows that price stability can exist without collision in an oligopoly.
Two firms "squabble" over a market. Observers have noticed that whenever the price of one firm was increased, the price of the other firm remained constant. On the other hand, whenever the price of one firm fell, its rival would reduce its own price too to maintain its market share. It is believed this behaviour will be maintained.