Explain the implications of the following in an oligopoly market:
Explain the implications of Non-price competition under oligopoly
Non-price competition:- In an oligopoly market, firms do not compete each other with changes in the price. If the firm increases the price, rival firms may not increase it, so it will lead to a loss of the market. Consumers will shift to rival firms. On the other hand, if the firm decreases the price, the rival firms may decrease it, so it will lead to a loss of total revenue. There will not be increase in the demand for the product. They take into consideration the decisions of rival firms, and hence, the price does not move freely and it leads to non-price competition. High selling cost prevails in the market, resources are not fully used and welfare is not maximised.
Non-price competition under oligopoly: Firms under oligopoly are in a position to influence the prices. However, they try to avoid price competition for the fear of price war. They follow the policy of price rigidity. Price rigidity refers to a situation in which price stay fixed irrespective of changes in demand and supply of the condition. They follow other ways such as advertising and providing better services to the customers to compete with each other