Considerations regarding price in oligopolistic structured markets

AuthorRamona Ciobanu
PositionDepartment of Law, Transilvania University of Brasov.
Pages1-10
Bulletin of the Transilvania University of Braşov Vol. 4 (53) No. 2 - 2011
Series V: Economic Sciences
CONSIDERATIONS REGARDING PRICE
IN OLIGOPOLISTIC
STRUCTURED MARKETS
Ramona CIOBANU1
Abstract: Economists report price rigidity in markets with oligopolistic
structures, while explaining the phenomenon. If an oligopolistic firm raises
prices, other prices will remain stable in oligopolistic firms, so we will see a
significant decrease in sales volume in the firm which increased prices. To
avoid this situation an oligopolistic company will not initiate price increases.
If oligopolistic firms lower prices, other oligopolistic firms will reduce prices
promptly and the result will be that of lower volume of sales - will sell the
same physical volume of goods but at a lower price. To avoid this situation,
the company will not initiate oligopolistic price decreases.
Key words: oligopolistic market, price rigidity, oligopolistic
interdependence, collusion.
1 Department of Law, Transilvania University of Braşov.
1. Price rigidity in markets with
oligopolistic structures
Oligopolistic structure has been the
subject of numerous investigations.
Cournot, Bertrand, Galbraith, Nicholson
are just some of the economists who have
studied this topic. Oligopolistic market
structure has a number of features that
customize the market in relation to other
structures. Thus, on the market, sellers are
only a few large companies, their products
are relatively homogeneous. Market entry
is difficult, because of relatively high
costs, to large firms and, unlike other
market structures, the interdependence of
oligopolistic firms is significant, their
behavior being a strategic one.
Oligopolistic firm's strategic behavior
means that each action is considered in
terms of its impact on other oligopolistic
firms and their reactions, because of the
strong interdependence between the
companies on the market. Strategic
behavior involves two important
consequences. The first is that profit-
maximizing decisions of oligopolistic
firms is not based on clearly defined rules,
but on how it believes that other firms will
act in response to these actions. The
second is that the results of these decisions
will depend on how other companies will
act in response to these actions.
2. The general theory of price
determination
In specialist literature [1] we have found
the general theory of oligopolistic market
price determination, starting from the
premise that there are some companies that
produce a single homogeneous product, the
market being perfectly competitive in
terms of demand. Four possible models
have been proposed.

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