Suppose the jeans industry is an oligopoly in which each firm sells its own distinctive brand of jeans, and each firm believes its rivals will not follow its price increases but will follow its price...

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Suppose the jeans industry is an oligopoly in which each firm sells its own distinctive brand of jeans, and each firm believes its rivals will not follow its price increases but will follow its price cuts.

Draw and explain the demand curvefacing each firm, and given this demand curve, does this mean that firms in thejeans industry do or do not compete against one another?

Answered Same DayDec 20, 2021

Solution

David answered on Dec 20 2021
3 Votes
Solution
Here we are considering an oligopolist jeans industry. In oligopoly market, there are not
too many firms. The main purpose of a firm in any industry is to earn high profits. Here also, in
oligopoly market the motive of each firm is to earn higher profits than its competitors. Suppose a
firm increases its prices then the price increase will not be followed by other firms. This is
ecause consumers usually buy from the firms which charge lower prices (unless the product is
differentiated) and so by not following the price increase, other firms can increase their market
share and earn higher revenues as compared to what they were earning earlier.
On the other hand, when a firm cut the price of its product then it is followed by a price
cut by all other firms in the industry. Again this is also due to profit...
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