Question

Please explain why oligopoly is could be treated as an externality phenomenon.

Please explain why oligopoly is could be treated as an externality phenomenon.

Homework Answers

Answer #1

We know that in an oligopolistic competitive market,

  • Inorder to create market power The firms will merge each other.
  • But there arises some externality with the adversary firm who does not set for merge.
  • Because of merger it decrease its rivals in the market as it makes showcase power prompting positive externality.
  • furthermore it makes a negative externality as it not creating at the effective level (when P=MC).
  • Implies it produces amount more noteworthy a monopolist yet lesser than the flawlessly competitive market as it charges cost more prominent than the impeccably competitive market yet lesser than the monopolistic market.
  • This is why oligopoly is treated as an external phenomenon

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