Final answer:
In oligopolies, one firm's decisions directly impact the profits of others due to the high level of interdependence within a small group of dominant firms. They may compete or collude, therefore, each firm's behavior can significantly influence market outcomes.
Step-by-step explanation:
The defining characteristic of an oligopoly is that one firm's behavior can affect the others' profits. This is because oligopolies are markets where a small number of firms hold a significant market share, making them highly interdependent. When one of these firms changes its price, output, or advertising strategy, it impacts the market as a whole, often leading to reactions from other firms within the market.
In an oligopolistic market, firms can either compete intensely and drive down profits, mimicking a perfectly competitive market, or they can collude, either formally or tacitly, to set prices and outputs like a monopoly, which is typically illegal. The interdependence and potential for collusion mean that each firm must carefully consider the potential reactions of its competitors when making strategic decisions.
An oligopoly is a market situation where a few firms dominate and one firm's behavior can affect the others' profits.
An oligopoly is a situation where a few firms sell most or all of the goods in a market. These firms have mutual interdependence, meaning that their decisions on pricing, output, and advertising are influenced by the decisions of other firms. One of the defining characteristics of an oligopoly is that one firm's behavior can affect the others' profits. For example, if one firm lowers its prices, the others may be forced to lower their prices as well to remain competitive.