Multiple Choice
If one firm operating in an oligopoly raises its price and other firms do not do so, what is the most likely outcome for the firm that raised its price?
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14. Oligopoly
Characteristics of Oligopoly
Multiple Choice
A distinguishing feature of an oligopolistic industry is the tension between:
A
perfect information and asymmetric information
B
free entry and exit of firms
C
cooperation and competition among firms
D
price-taking and price-making behavior
Verified step by step guidance1
Understand the nature of an oligopolistic market: it is a market structure characterized by a few firms that dominate the industry, which leads to strategic interactions among them.
Recognize that in oligopoly, firms are interdependent, meaning the actions of one firm affect the others, creating a tension between competing and cooperating to maximize profits.
Analyze the options given: perfect vs. asymmetric information relates to information availability, free entry and exit relates to market contestability, price-taking vs. price-making relates to market power, but these do not capture the core tension in oligopoly.
Identify that the key tension in oligopoly is between cooperation (colluding to act like a monopoly) and competition (acting independently to gain market share), which directly influences pricing and output decisions.
Conclude that the distinguishing feature of an oligopolistic industry is the tension between cooperation and competition among firms.
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