Strategic Behavior of Firms in Differentiated Oligopoly

Abstract

In the context of differentiated oligopoly each firm attempts to pursue a predefined goal (such as price-cost margins, market share, dominant product line etc) and endeavors to achieve it through a specific strategy (price, advertising or any other aspect of its supply chain). That is, each firm attempts to achieve a monopoly and operate in its own niche. Contemporary studies of monopoly power concentrate on the consequences of strategic choices alone. The present study offers an algorithmic approach from a behavioral perspective to the identification of non-price strategies and objectives of individual firms that confer it a monopoly. “And as regards practically all the finished products and services of industry and trade, it is clear that every grocer, every filling station, every manufacturer of gloves or shaving cream or handsaws has a small and precarious market of his own which he tries – must try – to build up and to keep by price strategy, quality strategy – ‘product differentiation' – and advertising” – Schumpeter (1950, p. 79).