Question

What is the reason for an indeterminate demand curve under oligopoly?

Answer 1

The demand curve under oligopoly is indeterminate because firms are mutually interdependent; each firm’s pricing or output decision affects its rivals, whose reactions are unpredictable. This makes it difficult to define a clear, stable demand curve.

Reasons:

1. Interdependence of Firms: Each firm’s actions provoke uncertain reactions from competitors, making demand unpredictable.
2. Lack of Definiteness: Unlike monopoly or perfect competition, an oligopolist’s demand curve may be neither downward-sloping nor horizontal it varies with competitors’ responses.
3. Strategic & Behavioral Uncertainty: Firms may cooperate or compete aggressively (e.g., price wars), creating conflicting demand outcomes.
4. Other Objectives: Firms may focus on goals like market share or stability not just profit affecting demand behavior.
5. Different Market Setups: Oligopoly markets vary in agreements, leadership, and structure, adding more unpredictability.
6. Oligopolistic Uncertainty: Firms engage in strategic thinking, trying to outguess rivals, which adds to demand curve instability.