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2 November, 14:49

Assume the firms in an oligopoly produce a differentiated product and are initially colluding. If each firm begins to cheat (to increase sales) by underpricing the other firms, as the amount of cheating increases, the resulting industry price and output will approach the outcome for:

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  1. 2 November, 15:32
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    Answer:The answer is price war

    Explanation:

    Oligopoly is a market structure which comprises of few sellers in which the firms in the market make decisions by taken into consideration the reactions of their competitors. Oligopoly situations may be classified on different basis, It may be classified on the basis of product diffentiation either as pure oligopoly or differentiated oligopoly. Pure oligopoly exist if the product produced and sold by the competing firms is identical or homogeneous while diffentiated oligopoly exist where the competing firms produce or sell closely substituted or differentiated products.

    Oligopoly may be classified on the basis of possibility of entry of firm as either open oligopoly or close oligopoly. An open oligopoly refers to a market which allows free and easy entry into the market, while a close oligopoly is the market which are controlled by a few firms in which entry by new competitor is prevented in the market. In oligopoly, no firm can really set prices independently each is bound to the other, which result in no demand curve under oligopoly. Initially, firm may attempt to set prices independently, this may lead to price wars. If firm now under price the other in a bid to increase sales it will lead to price wars on the part of the firm in the market. This will eventually force them to have collision on pricing.
  2. 2 November, 15:57
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    leave the equilibrium price unchanged.

    Explanation:

    The collusive oligopoly occurs when companies decide to make agreements with each other to obtain greater benefits. The group of companies that act through the agreement can share the benefits, but there is always the possibility that one betrays the rest to obtain more revenue.
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