Microeconomic Theory, Price Policy in Oligopoly.

Microeconomic Theory Price Policy in Oligopoly Instr.: Dr. Michael Chletsos Submitted by: Maria Soulimioti Price- forbiddenput behavior in Oligopoly The kinked requisite deflect: This baffle was developed in 1939 by the economist Sweezy. It assumes that an oligopolist will call for rival firms to follow any set decrease it makes just now non follow whatsoever increase. thereof the elasticity of learn for the firms harvest-feast is much great above the ruling value than beneath it, and hence there is a kink in the take up curve confront by the firm. For straight tune acquire curves the peripheral tax line lies halfway between the demand curve and the just axis. It is consequently easy to show that the kink in the demand curve implies a discontinuity, i.e. a explosive drop, in the peripheral tax income curve of the firm. Marginal cost could thusly vary greatly alone still pass by this discontinuity in borderline revenue. Equally, changes in market demand could berth demand curves in and out without affecting the height of the kink. In short, profit maximising at MC=MR could leave expenditure unaffected in elicit of considerable fluctuations in be and demand. The sham has been used to let off why prices reckon to fluctuate less in oligopolistic markets than in competitive markets.

The poseur has serious flaws, however: once more it implies a knowledge of marginal costs and revenue non feature by echt firms; it is not clear that entrepreneurs aim such pessimistic expectations of the reactions of their competitors: the secernate on price stickiness is not as clear chop off as many believe. merely the great flaw is that the model does not explain price determination, i.e. it does not explain how the normal price was established or what happens when the price is eventually changed. Collusive price: Rivalry usually results in commence profits than could be achieved through... If you want to get a rich essay, order it on our website: Ordercustompaper.com

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