Multiple Choice
Which of the following best explains why U.S. companies in an oligopoly tend to have similar prices?
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14. Oligopoly
Characteristics of Oligopoly
Multiple Choice
Why would oligopolists, as a group, generally be better off if they acted collectively rather than individually?
A
Because acting collectively always eliminates all competition from outside firms
B
Because collective action allows them to maximize joint profits by behaving like a monopoly
C
Because acting collectively leads to perfectly competitive market outcomes
D
Because collective action guarantees that each firm will have the same market share
Verified step by step guidance1
Understand the nature of an oligopoly: it is a market structure with a few firms whose decisions affect each other.
Recognize that when oligopolists act individually, they compete against each other, which can lead to lower prices and profits due to strategic interactions.
Consider that if oligopolists act collectively (collude), they can behave like a single monopolist, restricting output and raising prices to maximize their joint profits.
Note that acting collectively does not eliminate competition from outside firms, nor does it lead to perfectly competitive outcomes or guarantee equal market shares.
Conclude that the main reason oligopolists are better off acting collectively is because it allows them to maximize joint profits by reducing internal competition and behaving like a monopoly.
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