Answer to Question #219976 in Microeconomics for Sushant99

Question

Briefly explain how firms compete/set price under the Oligopoly market structure.

Answer 1

The legal as well as economic concern is that the oligopoly market structure may raise prices, block the new entrants and slow innovation, which may end up harming customers. Firms under oligopoly tend to set prices whether under one firm's leadership, collectively or in a cartel, instead of taking prices based on the market. Therefore, the profit margins tend to be more compared to if they will be in more competitive market.