Question

Firms in the perfectly competitive U.S. wool industry do not advertise individually, but they do advertise as a group through the National Wool Council. Milk producers, beef producers, and pork producers, among others, also advertise as a group. How can you explain this behavior? Use graphs to explain your answer.

Answer 1

In oligopoly the most relevant aspect is the behaviour of the groups.There can be two firms in the group or there or five or even fifteen,but not a few hundred.Whatever the number ,it is quite small so that each firms know that it's actions will have some effect on other firms in the groups.In contrast,under perfect competition,there are a large number of firms each attempting to maximizing it's profit

In oligopoly however this is not possible due to various reasons:

1) The firm constituting the group may not have a common goal

2) The group may or may not have a formal and oninform organisation with accepted rules of conduct

3)The group my be dominated by a leader but other firms in the groups may not follow him in a uniform manner

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