As a result, firms cannot pass on any part of the tax by raising prices, so they would be forced to pay all of it themselves. "Pricing Tests and Price Elasticity for one product". Economics: Principles, Problems, and Policies (11th.). "Profile of The Canadian Egg Industry". Health Care Economics (5th.). An understanding of game theory and the, prisoners Dilemma helps appreciate the concept of interdependence. Whether to raise or lower price, or keep price constant. Given the lack of competition, oligopolists may be free to engage in the manipulation of consumer decision making. This takes some of the risk out of pricing decisions, given that all firms will abide by the rule.
For example, a person in the desert weak and dying of thirst would easily give all the money in his wallet, no matter how much, for a bottle of water if he would otherwise die. The above formula usually yields a negative value, due to the inverse nature of the relationship between price and quantity demanded, as described by the "law of demand ". 28 If no close substitutes are available, the substitution effect will be small and the demand inelastic. Oligopolists have to make critical strategic decisions, such as: Whether to compete with rivals, or collude with them. Fuel retailing, fuel retailing in the UK is dominated by six major suppliers, including Tesco, BP, Shell, Esso, Morrisons and Sainsbury, as shown below: Further examples. (The effect is reversed for elastic goods.) The quantity effect An increase in unit price will tend to lead to fewer units sold, while a decrease in unit price will tend to lead to more units sold. Rivals have no need to follow suit because it is to their competitive advantage to keep their prices as they are. 10 26 Duration For most goods, the longer a price change holds, the higher the elasticity is likely to be, as more and more consumers find they have the time and inclination to search for substitutes. It is not to be confused with.