Strategic Interdependence in Pricing with Few Competitors
In markets with a small number of firms selling differentiated products, the 'fixed demand curve' assumption becomes unrealistic. Instead, firms exhibit strategic interdependence. This means a firm's demand curve is not fixed; it shifts in response to the pricing decisions of its competitors. Consequently, each firm must think strategically, anticipating competitors' actions and recognizing that their own pricing choices will influence those of their rivals.
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