Does an oligopoly price discriminate? why or why not

Does an oligopoly price discriminate? why or why not

 

 

answer:

In an oligopoly price discrimination is not possible because in oligopoly there is interdependence of firms and there is price rigidity so the firms cannot discriminate their prices. This can be more explained by the following model-

Sweezy Model of Kinked demand curve

Sweezy assumes that if oligopolistic firm lowers its price ,its rivals will react by matching that price cut in order to avoid losing their customers. Thus the firm lowering the price will not be able to increase its demnad much. This portion of demand is relatively inelastic. On the other hand if oligopolistic firm increases its price its rivals will not follow it and change their prices Thus quantity demanded of this firm will fall considerably. This portion of demand is relatively elastic.

There is continuously a price war which results in disastrous low level of prices. when some of the producers find themselves at an discriminatory pattern of prices charged from the consumers such cut throat competition in industry brings heavy overheads and increasing costs proves ruinous to all producers.

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