In an oligopoly, firms face a few key characteristics: they have a limited number of rivals, products may be differentiated or homogeneous, and the actions of one firm can significantly impact others. When competing with rivals, oligopolists often employ:
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Collusion: Firms may engage in collusive agreements to set prices or output levels to maximize collective profits, but this is illegal in many jurisdictions.
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Price cuts and stability: While price cuts can be used to gain market share, they can also lead to price wars where rivals may match price cuts, leading to reduced profits for all. Oligopolists may prefer price stability to avoid this.
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Advertising: Oligopolists often invest heavily in advertising to differentiate their products and create brand loyalty, making it harder for rivals to compete directly.
Out of the options listed, Advertising because it is difficult to duplicate would be the most relevant strategy that oligopolists employ to compete, as it allows them to create a unique market presence and potentially increase market share without directly cutting prices.
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