In an oligopolistic market, prices will tend to be closer to the competitive price:
A) the more government regulation there is in the market.
B) when the product is more distinguishable from its competitors.
C) the fewer the number of firms there are in the industry.
D) the fewer number of sales.

Question

Quizplus · Accepted Answer

In an oligopolistic market, there are only a few firms that dominate the industry. This leads to a situation where these firms have a significant share of the market power, which enables them to influence prices. However, they are also aware of the fact that they need to keep prices close to the competitive price to avoid losing customers to their competitors. Thus, the fewer the number of firms there are in the market, the more likely it is that prices will be closer to the competitive price. This is because each firm knows that the pricing decision of one competitor will affect the others, leading to strategic interdependence among them.

In an Oligopolistic Market, Prices Will Tend to Be Closer