What is the significance of the mutual interdependence among the firms

What is the significance of the mutual interdependence among the firms in an oligopolistic market?

What will be an ideal response?

ANSWER

The assertion that the firms in an oligopolistic market are mutually interdependent means that the decisions of one firm have an effect on the decisions of the other firms in the market. This stems from the fact that each of the dominant firms in the market possesses a relatively large market share. Thus, for example, if firm A decides to raise its price, the other firms are likely to leave their prices unchanged in anticipation of being able to take away part of A’s market share. This could result in a significant decrease in A’s revenues and a corresponding increase in the revenues received by its competitors.