Question

It is because of high degree of interdependence that firm's demand curve remains indeterminate under oligopoly. Comment.

Answer 1

Yes. Firm's demand curve is indeterminate under oligopoly because there is a high degree of interdependence among the firms. Price and output policy of one firm has a significant impact on the price and output policy of the rival firms in the market. When one firm lowers its price, the rival firms may also lower the price. And, when one firm raises the price, the rival firms may not do it. Accordingly, it becomes very difficult to estimate change in firm's sales caused by a change in price. Implying that a precise relationship between price and sales cannot be established. Or, that the firm's demand curve cannot be drawn.