Microeconomic Theory, Price Policy in Oligopoly.

Microeconomic Theory Price Policy in Oligopoly Instr.: Dr. Michael Chletsos Submitted by: Maria Soulimioti Price-output behavior in Oligopoly The cuted requisite curve: This mould was developed in 1939 by the economist Sweezy. It assumes that an oligopolist will involve rival firms to follow either set decrease it makes plainly non follow whatsoever increase. Thus the elasticity of make for the firms harvest-tide is much great above the ruling price than downstairs it, and hence there is a kink in the learn curve confront by the firm. For straight line penury curves the peripheral tax line lies halfway between the film curve and the just axis. It is thus easy to show that the kink in the demand curve implies a discontinuity, i.e. a sharp drop, in the peripheral revenue curve of the firm. Marginal damage could thus vary greatly but still cheerio through this discontinuity in marginal revenue. Equally, changes in market demand could shift demand curve s in and out without affecting the efflorescence of the kink. In short, profit maximising at MC=MR could carry price unaffected in spite of considerable fluctuations in costs and demand. The model has been used to let off why prices appear to fluctuate less in oligopolistic markets than in warring markets.

The model has serious damages, however: again it implies a intimacy of marginal costs and revenue not feature by real firms; it is not put on that entrepreneurs hold such bearish expectations of the reactions of their competitors: the evidence on price stickiness is not as clear cut as many believe. But the great flaw is that the model does not ! explain price determination, i.e. it does not explain how the prevailing price was established or what happens when the price is in the end changed. Collusive Pricing: Rivalry usually results in bugger off profits than could be achieved through... If you want to get a well-heeled essay, order it on our website: OrderCustomPaper.com

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