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Oligopolies !!! What's the point Watch

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    In oligopolies when firms lower their price, it is suggested that other firms will follow to maintain and protect their market share? Why is this? What is the importance of keeping their market share? and why do firms lower their price in first place if in an oligopolistic market structure they know other firms will follow? I understand that the kinked demand curve demonstrates price stickiness but realistically would firms lower prices and go in to a price cutting war ??? Any examples ??? I just need help in to building a strong argument thank you in advance
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    (Original post by nadiakms)
    In oligopolies when firms lower their price, it is suggested that other firms will follow to maintain and protect their market share? Why is this? What is the importance of keeping their market share? and why do firms lower their price in first place if in an oligopolistic market structure they know other firms will follow? I understand that the kinked demand curve demonstrates price stickiness but realistically would firms lower prices and go in to a price cutting war ??? Any examples ??? I just need help in to building a strong argument thank you in advance
    Market share is important for several reasons. I'm going into more business-related rationales here but for one, I think a lot of people underestimate the importance of market share in creating a 'default standard' in an industry, where those with the largest market share are inherently more recognisable to new consumers and therefore has a good chance of new customer acquisition. We practically only use Google, the most dominant search engine in terms of market share, to look for things on the internet to the extent we even say to "Google it". In terms of social media, virtually everyone in our generation has Facebook accounts. All of this influences the considerations that new customers have which is important for fundamentals like growth, revenue and profitability. I could say a lot more here but I think you'll have gotten the idea.

    On that basis then, if you have the opportunity to add market share from a position that you know is artificially kept higher, would you not be tempted to take it? There's no hard and fast rule that they have to do so, but some companies may decide that the payoff from doing so is worth it. In your question, you've noted that other firms might follow, that is, an oligopolistic market structure has a degree of inter-dependence between it's participants. Would a company just let another firm muscle in on it's bottom line without any form of retaliation? It's extremely unlikely as it's a threat to not just growth but the future of the firm. That's why typically you don't see them trying to lower prices to compete, as doing so can create a profit-destroying price war which isn't a desirable outcome. For many, the risk of this is too great to compete on price.
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    (Original post by The Financier)
    Market share is important for several reasons. I'm going into more business-related rationales here but for one, I think a lot of people underestimate the importance of market share in creating a 'default standard' in an industry, where those with the largest market share are inherently more recognisable to new consumers and therefore has a good chance of new customer acquisition. We practically only use Google, the most dominant search engine in terms of market share, to look for things on the internet to the extent we even say to "Google it". In terms of social media, virtually everyone in our generation has Facebook accounts. All of this influences the considerations that new customers have which is important for fundamentals like growth, revenue and profitability. I could say a lot more here but I think you'll have gotten the idea.

    On that basis then, if you have the opportunity to add market share from a position that you know is artificially kept higher, would you not be tempted to take it? There's no hard and fast rule that they have to do so, but some companies may decide that the payoff from doing so is worth it. In your question, you've noted that other firms might follow, that is, an oligopolistic market structure has a degree of inter-dependence between it's participants. Would a company just let another firm muscle in on it's bottom line without any form of retaliation? It's extremely unlikely as it's a threat to not just growth but the future of the firm. That's why typically you don't see them trying to lower prices to compete, as doing so can create a profit-destroying price war which isn't a desirable outcome. For many, the risk of this is too great to compete on price.
    Thank you so much, this is honestly the answer I needed, ahhh I'm grateful
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    (Original post by nadiakms)
    Thank you so much, this is honestly the answer I needed, ahhh I'm grateful
    No worries! If you have other questions, let us know
 
 
 
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