Because an oligopoly has a small number of firms,
A)each firm can act like a monopoly.
B)the firms may legally form a cartel.
C)the HHI for the industry is small.
D)the four-firm concentration ratio for the industry is small.
E)the firms are interdependent.

Question

Quizplus · Accepted Answer

In an oligopoly, the firms are interdependent, meaning that their actions and decisions directly affect each other. This is because there are only a few firms in the industry, so any changes in price, output, advertising, or other decisions made by one firm will impact the others. As a result, firms in an oligopoly must consider the reactions of their competitors when making decisions, which can lead to strategic behavior and competition that resembles a game of chess. While oligopolies can exhibit characteristics of monopolies (such as pricing power) or cartels (where firms collude to coordinate their actions), the defining feature of an oligopoly is interdependence.

Because an Oligopoly Has a Small Number of Firms