List the three different ways in which oligopoly firms may behave.

The three different ways in which oligopoly firms may behave are as follows:

• Intense competition: Each firm keeps a close watch on the activities of the rival firms. It is always busy in preparing an appropriate strategy to deal with the rival firms. It evolves both aggressive and defensive strategies to survive and prosper in the face of competition from its rival firms.

• Interdependence: Each firm is worried about how its rivals will react to anything it does. The reason is that when the number of competitors is small, any change in price, output, product etc by one firm will affect the rival firms and will force them to retaliate by changing their price, output, product etc.

• Barrier to entry: The existence of oligopoly is dependent on the existence barriers to new firms in the industry. The barriers may take the form of price cutting, control over important inputs, patent rights etc. If a large number of firms enter into the market in absence of the barriers it will no longer be an oligopoly market having a unique characteristic of ‘few sellers’.