Firms in oligopoly must constantly think in terms of how other firms in the industry will react to whatever they do. Why do they have to do this? Why is it that firms in perfect competition and in monopoly don’t have to worry about how other firms will react?

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Firms in oligopoly need to consider the reactions of other firms because of their interdependence in the market Unlike monopoly or perfect competitionoligopolistic markets have a few key players with significant market powerThis interdependence creates a strategic environment where decisions of one firm significantly impact the others Heres a breakdown of why each market structure faces different considerations Oligopoly Few firms Each player holds a substantial market share influencing overall industry prices and output Strategic interactions Decisions like price changes new products or marketing campaigns directly affect rival firms profits and can trigger retaliatory actions Game theory applies Firms in oligopoly engage in a continuous game of anticipating and responding to rivals moves requiring careful strategic planning Uncertainty and potential price wars Predicting rivals reactions is challenging leading to uncertainty and potential price wars or other competitive skirmishes Perfect Competition ... View the full answer