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Oligopolistic relationship and coordination

A characteristic feature of oligopoly is a high degree

interdependence and coordination of actions, since the number of enterprises in the industry is so limited that each of them, when making decisions on prices and volume of production, is forced to take into account the reaction of competitors.

With the coordinated behavior of the company - oligopolists take into account and agree on market strategy and tactics. We are talking about the division of the market, about a single pricing policy, about the formation of cartels and tacit agreements, or about simply following the price leader. The coordinated behavior of the oligopoly brings it closer to pure monopoly.

The uncoordinated behavior of one firm can lead, with their small number in the industry, to a price war and the gradual crowding out of competitors from the oligopolistic industry.
True, not every company can afford such behavior. If the share of the company is one third of the market, then the response of other companies that coordinated their actions will lead to its crowding out of the industry. Therefore, such a strategy can only be implemented by a leading company that controls more than half of the market. Interconnection and coordination in the oligopoly are very closely related to pricing policies.
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Oligopolistic relationship and coordination

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