Question

why is an oligopoly characterized by mutual interdependence ?

answer with your own word ( 200 words )

Answer 1

An oligopoly is an interdependence. A few large firms create Oligopoly firms. Each firm is so large that its condition effect market condition. So the firms will be aware of the market actions and will respond on the basis of this. In this market structure, any change in price by one firm affects a lot to other firms. Therefore, there is mutual interdependence among firms under oligopoly. But, since under perfect competition and monopolistic competition there is a large number of firms, each firm has a little power to influence the market price. Due to this interdependency, the prices in oligopoly markets tend to be sticky in the sense that they are unlikely to change very often. This gives price rigidity in the oligopolistic market.