3which my model is based. I will then develop, in chapter B, the theoretical model of thesuggested price freeze and discuss its expected effect on oligopoly markets.Part III presents the detailed implementation scheme of the suggested oligopolyprice freeze, in which I try to adapt the theoretical model to actual real-world industries.Chapter A addresses the various potential problems and inefficiencies associated with theimplementation of a price freeze in oligopoly markets and discusses how they could beeliminated or at least minimized. Chapter B defines the markets in which the suggestedprice freeze should be implemented. Chapter C presents the detailed suggested pricefreeze, and chapter D presents an example of a major real-world industry in which thesuggested price freeze could have been successfully implemented and could have had asignificant impact on firms’ prices and output decisions.
Economic theory provides us with unambiguous predictions about pricing andoutput decisions in competitive or monopolistic markets, while it fails to do so when itcomes to oligopoly markets. In markets with a large number of small firms, an individualfirm cannot affect the market price because of its insignificant size. In pure monopolisticmarkets, the monopolist can set the output and the price independently as there are norivals to consider. In contrast, in oligopoly markets, each oligopolist’s decision has thepotential to affect its rivals’ sales. The oligopolists, as they are aware, are thereforeinterdependent. Their basic difficulty is then uncertainty regarding rivals’ actions andreactions. To maximize profits, each oligopolist must correctly conjecture its profit-seeking rivals’ strategies. Economists also have to identify these strategies to understandoligopolistic industries’ performances. In this regard, economists have developednumerous models; some are simple, while others rely on advanced, sophisticatedmathematics.
Furthermore, an observation of concentrated markets reveals that pricingbehavior can vary substantially from one oligopoly market to another.
(3d ed. 1990).
In some industries (such as the cigarettes and the breakfast cereals) the oligopoly firms succeeded inmaintaining prices at a supra-competitive level for many years, while other oligopoly markets havegravitated toward significant price competition.