Arizona State University (ASU) MGT302 Principles of International Business Exam 3 Practice

Firms entering oligopoly markets often face significant challenges due to the nature of the market structure itself. Oligopolies are characterized by a small number of firms that dominate the market, leading to interdependencies among the companies. This means that the pricing strategies of one firm can heavily influence the pricing and output decisions of others. As a result, establishing effective pricing strategies becomes complex because companies must consider not only their costs and desired profits but also the potential reactions of their competitors.

If one firm lowers its price, competitors may retaliate, creating a price war that erodes profits for all players involved. Conversely, if a firm raises its prices, it risks losing market share to rivals that may not follow suit. Therefore, firms must navigate this intricate landscape of competitor behavior, making it quite challenging to establish stable and profitable pricing strategies in oligopoly markets. This highlights the strategic decision-making that is critical for success in such competitive environments.