Homework Answers
Answer: They fear that their competitors will follow price decreases but ignore price increases.
In an oiligopoly market is characterized by few firms and many buyers. The firms are competitor to each other. If one firm decreases the price of its product, the other firms will follow it, i.e., they will also lower the price of their products. As a result, the revenue and hence the profit of all the firms will decrease. If a firm in this market increase the price of its product, the other firms will not follow it. It is a strategic behavior, and the firms know that if they raise the price of their products, they will loss customers. So, the firms in an oligopoly market often reluctant to change the price of their products as they fear that their competitors will follow price decreases but ignore price increases.
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