Economics Oligopoly Questions
The price undercutting theory in oligopoly refers to a strategy employed by firms in an oligopolistic market structure where one firm lowers its prices below the prevailing market price in order to gain a competitive advantage and increase its market share. This tactic is often used to attract customers away from rival firms and can lead to a price war within the industry. The goal of price undercutting is to weaken competitors and potentially drive them out of the market, allowing the firm engaging in this strategy to eventually raise prices and increase its profits.