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An example of this interdependence can be shown if firm A takes the action of lowering the price of its good. If other firms keep the same price as they had previously, they will lose sales to firm A. If they react by lowering their price to the same as that of firm A, they will avoid losing sales but will lose profit per sale equivalent to the fall in price that has occurred. To complicate things further, all other firms also have the option of cutting price below that of the firm A’s original cut. In oligopoly firms make their decisions on ‘some guess, or conjecture, about its competitors’ responses...
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