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Question
What is meant by prices being rigid? How can oligopoly behaviour lead to such an outcome?
What is meant by prices being rigid? How can oligopoly behaviour lead to such an outcome?
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Solution
Rigid prices imply that there will be no frequent changes in the price of the commodity even when there is a change in cost or demand. Following oligopoly behaviour leads to such outcomes:
(i) Firms fear the reactions of the rival firms towards change in price
(ii) Cost of informing the customers, advertisement/price lists etc. discourages the firms to change the price
(iii) Small changes in demand and cost sometimes may not induce the firms to change the price because sufficient profit margin may already be included in it
Rigid prices imply that there will be no frequent changes in the price of the commodity even when there is a change in cost or demand. Following oligopoly behaviour leads to such outcomes:
(i) Firms fear the reactions of the rival firms towards change in price
(ii) Cost of informing the customers, advertisement/price lists etc. discourages the firms to change the price
(iii) Small changes in demand and cost sometimes may not induce the firms to change the price because sufficient profit margin may already be included in it
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