Question

Is price and output under, oligopoly indeterminate? Prove the statement.

Answer 1

Yes, price and output under oligopoly are considered indeterminate.

• There is no general theory that explains price and output decisions in all oligopoly situations, so they are considered indeterminate.
• Oligopoly firms are interdependent; each firm’s decisions affect others, which then react and influence the original firm, creating uncertainty.
• Because of this interdependence, the demand curve faced by an oligopolist is indeterminate and keeps shifting with rival firms’ reactions.
• The firm cannot assume a downward-sloping demand curve as in monopoly, nor a horizontal curve as in perfect competition.
• Firms may have motives other than profit maximization, such as sales maximization or security, adding to indeterminacy.
• Different oligopoly industries have diverse institutional arrangements, so no single pricing pattern emerges.
• Firms recognize their interdependence in decision-making and factor rivals’ potential reactions, leading to uncertainty.
• There is oligopolistic uncertainty as firms try to outguess each other’s moves, preventing a stable equilibrium.
• Prices tend to be rigid in oligopoly markets; firms avoid frequent price changes and often compete by non-price methods.
• Conflicting attitudes of firms – cooperation sometimes and competition at other times – create more unpredictability in outcomes.