Explain the concept of a price ceiling in oligopoly.

Explain the concept of a price ceiling in oligopoly.

In oligopoly, a price ceiling refers to a government-imposed maximum price that can be charged for a particular good or service. This is done to protect consumers from potential price gouging or monopolistic behavior by firms in the oligopolistic market. The price ceiling is set below the equilibrium price, which is the price that would naturally occur in a competitive market. By setting a price ceiling, the government aims to ensure that the price remains affordable for consumers and prevent firms from exploiting their market power to charge excessively high prices. However, implementing a price ceiling in an oligopoly can have unintended consequences, such as shortages, reduced quality, or the creation of black markets, as firms may struggle to cover their costs or find it unprofitable to produce at the capped price.