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February 17, 2019 

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OLIGOPOLISTIC BEHAVIOR: Oligopolistic industries are nothing if not diverse. Some sell identical products, others differentiated products. Some have three or four firms of nearly equal size, others have one large dominate firm (a clear industry leader) and a handful of smaller firms (that follow the leader). Whatever products they may sell, and however they may be organized, oligopolistic industries share several behavioral tendencies, including (1) interdependence, (2) rigid prices, (3) nonprice competition, (4) mergers, and (5) collusion. In other words, each oligopolistic firm keeps a close eye on the decisions made by other firms in the industry (interdependence), are reluctant to change prices (rigid prices), but instead try to attract the competitors customers using incentives other than prices (nonprice competition), and when they get tired of competing with their competitors they are inclined to cooperate either legally (mergers) or illegally (collusion).

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EXPLICIT COST: An opportunity cost that involves a money payment and usually a market transaction. This should be contrasted with implicit cost that does NOT involve a money payment or a market transaction. Explicit cost is also termed out-of-pocket or accounting cost.

     See also | opportunity cost | money | market | implicit cost | normal profit | accounting cost | economic cost | scarcity |


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EXPLICIT COST, AmosWEB GLOSS*arama, http://www.AmosWEB.com, AmosWEB LLC, 2000-2019. [Accessed: February 17, 2019].


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KINKED-DEMAND CURVE ANALYSIS

An analysis using the kinked-demand curve to explain rigid prices often found with oligopoly. The kinked-demand curve contains two distinct segments--one for higher prices that is more elastic and one for lower prices that is less elastic. Key to this analysis is that the corresponding marginal revenue curve contains three segments--one associated with the more elastic segment, one associated with the less elastic segment, and one associated with the kink. A profit-maximizing firm can then equate marginal cost to a wide range of marginal revenue values along the vertical segment of the marginal revenue curve. This suggests that marginal cost must change significantly before an oligopolistic firm is inclined to change price.

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