Interdependence
Definition. Interdependence is the situation in which the decisions of one firm directly affect, and are affected by, the decisions of its rivals, a defining feature of an oligopoly with a few dominant firms. Because each firm output and pricing influence the others, firms must anticipate and react to their competitors moves.
This mutual dependence explains behaviour such as price rigidity, illustrated by the kinked demand curve, and the incentive for firms to collude rather than compete openly.
This term belongs to Oligopoly in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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