Firms in oligopolistic markets often engage in strategic decision-making, taking into account the potential reactions of their competitors. This interdependence can lead to various outcomes:
Collusion: Firms may collude, either overtly or tacitly, to set prices and output levels. This can lead to higher prices for consumers. Price Wars: Conversely, firms may engage in price competition, leading to price wars that can benefit consumers but hurt the firms' profitability.