Question

You are the manager of one of the few cellphone service companies in the industry. In order to attract more consumers, you implemented a 50 % price cut in all plan rates. Soon after, you are fired. Explain what happened (Hint: think about the different oligopoly models).

Answer 1

Oligopoly is a market structure where there are few number of competitors , action of each can significantly affect the other. There is no upper limit to the number of the companies , but number should be low enough that action of one company can influence the other. For example pepsi and coca-cola

Companies in oligopoly set price collectively - in cartel or under leadership of of companies. Thus they ignore market demand and supply to set price. It is important to note that here to remain stable group do not wage price war rather they use product differentiation, branding and marketing to promote their product.

Since to capture market share 50% price cut in all plan rate is nothing but price war. Since in oligopoly firms don't use price war this action is not right