Economics Oligopoly Questions
The Sweezy model in oligopoly is an economic model that describes the behavior of firms in an oligopolistic market structure. It is based on the assumption that firms in an oligopoly are interdependent and engage in strategic decision-making. According to the Sweezy model, firms in an oligopoly are likely to engage in non-price competition, such as advertising, product differentiation, and innovation, rather than engaging in price competition. This is due to the belief that price cuts by one firm will lead to retaliatory price cuts by other firms, resulting in a price war and reduced profits for all firms involved. Therefore, the Sweezy model suggests that firms in an oligopoly tend to maintain prices above marginal cost and exhibit a kinked demand curve, where demand is relatively elastic above the current price and relatively inelastic below it.