Price stability may bring advantages to consumers and the macro-economy because it helps consumers plan ahead and stabilises their expenditure, which may help stabilise the trade cycle. The disadvantages of oligopolies Oligopolies can be criticised on a number of obvious grounds, including: High concentration reduces consumer choice.
Our customers are the enemy.
If there are only two giant firms in an industry and they produce identical products. In some industries, a few firms can meet the entire demand for the product. Hence, it can be regarded as a response to information failure.
They are not my friend. Oligopoly is probably the second most common market structure. Thus, the members of a cartel can discipline each other to stick to the pre-agreed levels of quantity and price through a strategy of matching all price cuts but not matching any price increases.
Main article: Cournot competition The Cournot — Nash model is the simplest oligopoly model. Each strategy can be evaluated in terms of: How successful is it likely to be?
Therefore, the competing firms will be aware of a firm's market actions and will respond appropriately. In Oligopolist cheating, and the incumbent firm discovering this breach in collusion, the other firms in the market will retaliate by matching or dropping prices lower than the original drop.
Even though it is illegal in many parts of the world for firms to set prices and carve up a market, the temptation to earn higher profits makes it extremely tempting to defy the law.
The main motives of mergers include increasing market powers, more resources, economies of scale and market extensions etc.