Microeconomic Theory Price Policy in Oligopoly Instr.: Dr. Michael Chletsos Submitted by: Maria Soulimioti Price-output behavior in Oligopoly The bended requisite curve: This theoretical account was developed in 1939 by the economist Sweezy. It assumes that an oligopolist will live rival firms to follow either set decrease it makes but non follow whatsoever increase. Thus the elasticity of make for the firms result is much great above the ruling price than infra it, and hence there is a kink in the pack curve confront by the firm. For straight line conduct curves the peripheral tax line lies halfway between the aim curve and the just axis. It is thus easy to show that the kink in the demand curve implies a discontinuity, i.e. a fast drop, in the peripheral revenue curve of the firm. Marginal court could thus vary greatly but still top out through this discontinuity in marginal revenue. Equally, changes in market demand could shift demand curves in a nd out without affecting the flush of the kink. In short, profit maximising at MC=MR could go away price unaffected in spite of considerable fluctuations in costs and demand. The model has been used to let off why prices appear to fluctuate less in oligopolistic markets than in competitive markets.
The model has serious defects, however: again it implies a fellowship of marginal costs and revenue not feature by real firms; it is not chiseled that entrepreneurs hold such disheartened expectations of the reactions of their competitors: the evidence on price stickiness is not as clear cut as many believe. Bu t the great flaw is that the model does not! explicate price determination, i.e. it does not explain how the prevailing price was established or what happens when the price is at long last changed. Collusive Pricing: Rivalry usually results in bewilder profits than could be achieved through... If you want to get a luxuriant essay, order it on our website:
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