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I consider how a firmfs competition may strategically react to the decisions of the firm, and changes in the marketplace. To illustrate how different types of competition affect industry profits, I will look at a market structure oligopoly which is much more difficult to evaluate than other market structure. It is important to realize that most real world industries engage in many different types of competition simultaneously. This paper will provide information to answer the questionh Why is oligopolistic collusion more difficult when there is product variation than when the products of all firms are identical?h About Oligopoly Oligopoly is defined as an industry in which there are a few firms. By a few it is meant that the number of firms should be sufficiently small for there to be conscious interdependence, with each firm aware that its future prospects, depend not only on its own policies, but also those of its rivals. An industry is defined as a group of firms where the firms products are close substitutes for one another, that is have a high and positive cross elasticity of demand There are three-models in oligopoly such as collusion, price leadership, and Kinked demand curve. In this paper, I will focus on the collusion model (the cartel model), and then explain the collusion model. Collusion and Cartels When an oligopoly is non-collusive the firm uses guesswork and calculation to handle the uncertainty of its rivals reactions.
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