CA Foundation · Business Economics · Price Determination in Different Markets
Four large cement companies in a region each hold about 25% of the market, and each watches the others' pricing closely before deciding its own. Which feature of oligopoly does this behaviour best illustrate?
This shows interdependence among firms, the defining feature of oligopoly. With only a few large sellers, each firm's price and output decisions affect rivals, so each must anticipate their reactions. Price taking and free entry are characteristics of perfect competition, not oligopoly.
- AInterdependence among firmsCorrect
- BFree entry and exit of firms
- CPerfectly homogeneous demand
- DPrice taking behaviour
Explanation
In oligopoly, few firms are large enough that each one's decisions affect rivals, so each must consider rivals' reactions. This is mutual interdependence. Price taking and free entry belong to perfect competition, not to this behaviour.
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