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Mutual Interdependence (Oligopoly)
Mutual interdependence in an oligopoly refers to the concept that the actions of one firm will have an effect on the actions and performance of other firms in the same market. In an oligopoly, a small number of firms dominate the market, and they are often very aware of each other’s actions and strategies. Here are a few ways mutual interdependence can manifest in an oligopoly:
- Price wars: If one firm lowers its price, other firms may follow suit to compete. This can lead to a "race to the bottom" where prices are driven down and profits are reduced for all firms.
- Collusion: Firms may collude and agree to maintain prices at a certain level to avoid price wars and maximize profits for all firms.
- Advertising: Firms may try to outdo each other with advertising and marketing campaigns to gain market share.
