Answer to Question #31502 in Microeconomics for Steven McCarthy
Models of pure competition and monopoly provide insights into oligopoly behavior, but firms in neither of these groups base decisions on the expected
reactions of other firms. Thus, theories of oligopoly cannot just blend
theories of competition and monopoly.
Oligopoly models must account for interdependence in decision-making. That is,
each individual firm weighs its potential rivals’ reactions when it chooses a
business strategy. Theories of oligopoly abound because the dynamics of
interdependence differ markedly from one industry to another. Just as proper
play in poker depends as much on how well you read your opponents as it does on
the cards you are dealt, oligopolists' strategies depend on their individual
positions relative to those of current competitors and potential rivals.
Until recently, most specialists in industrial organizations thought that a general model should be developed to cover the behavior of all firms that
operated in oligopoly markets. Most economists have concluded that this is not
possible. One modern approach to analyzing oligopoly involves modeling
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