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Problems of Pricing under Oligopoly

Here we understand the Problems of pricing under Oligopoly in detail.

Problems of Pricing Under Oligopoly:
In market structures, other than oligopoly, price and out are determinate. Under oligopoly, it is not easy to find out definite level of price and output. The price and output under oligopoly are indeterminate for following reasons. They are as follows-
  1. Inherent Uncertainties: It is also one of the problems of pricing under oligopoly. Interdependence of firm creates uncertainties in oligopolistic markets. According to Professor W.J. Baumol, rival firms may decide to cooperate in the pursuit of their objectives, or they may try to fight each other to the death. Even if they enter into an agreement, it may last or it may break down. Agreements follow a wide variety of patterns.
  2. Interdependence of Firms: No firm under oligopoly knows how to rival firms will react to its move to lower the price. No firm under oligopoly knows the nature of its demand curve.
  3. Questionable Validity of Profit Maximising Assumption: In Neo-Classical price theory, profit maximising assumption provides a definite solution of price and output determination in markets other than oligopoly. But under oligopoly the validity of this assumption is questionable. According to Professor K.W. Rothschild, desire for secure profits is more important than the desire for maximum profits. Professor R.Marris believes that a modern business firm aims at balanced growth rate.
Problems of Pricing under Oligopoly
Interdependence of Firms
Inherent Uncertainties
Questionable Validity of Profit Maximising Assumption
Oligopoly- Emergences
Problems and Solutions- Problems of Pricing under Oligopoly.
Kinnari
Tech writer at NewsandStory
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