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What is meant by an oligopoly being both interdependent and uncertain in their price strategies?

Oligopolies are interdependant as the success of their price strategy relies on the reaction of other oligopoly firms in the market. If an oligopoly decided to increase the price of it's output, they would only experience increased revenue if the other firms also increased their price, making the firm dependant on the others.

The aspect of uncertainty follows a similar theory; oligopolies are never certain of how rivals will react - even in the case of collusion. It would be in all firms' best interest to increase their prices as this will also increase everyones revenue, however this is unlikely due to uncertainty. If all firms decided to increase their price but one firm changed their mind, that one firm would capture the market share of all the others as well as taking their revenue potential. This therefore means prices are likely to be stable in oligpolostic markets.

Reubin B. GCSE Maths tutor, A Level Maths tutor, GCSE Economics tutor...

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