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Interdependence means that the firms in the market must take into account the likely reactions of their rivals to any change in price, output or forms of non-price competition. It is a key aspect of business competition and behaviour in an oligopoly and can be modelled by the use of game theory.

Interdependence between businesses is the extent to which businesses rely on each other for inputs, outputs, or other forms of cooperation.

Interdependence can be beneficial for businesses because it can lead to lower costs, higher quality goods and services, and more innovation. However, interdependence can also be risky for businesses because it can make them vulnerable to the actions of their suppliers, customers, or competitors.

There are a number of factors that can affect the level of interdependence between businesses, including:

  • The size of the businesses
  • The industry in which the businesses operate
  • The level of technology in the industry
  • The regulatory environment

In general, businesses that are larger, operate in more concentrated industries, and face less regulation tend to be more interdependent.

There are a number of ways that businesses can manage interdependence, including:

  • Diversifying their suppliers and customers
  • Investing in research and development
  • Building relationships with their suppliers and customers
  • Insuring against risk

Interdependence is an important concept in economics. It can lead to both benefits and risks for businesses. It is important for businesses to understand the level of interdependence that they face and to manage it effectively.

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