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Testifying at a price-fixing trial involving Cargill Corp
Testifying at a price-fixing trial involving Cargill Corp. and the market for chicken growth hormone, (in which Cargill is one of only three firms worldwide), an executive for Perdue said: "It's an oligopoly. When one (firm) changes price, they all do and usually within minutes." Why is it not surprising to find that in an oligopoly with very few firms each of which sells a basically undifferentiated product like chicken growth hormone, all the firms change prices simultaneously, even if there is no explicit price-fixing?
Expert Solution
An oligopoly market is the market structure where few firms have domination over the market. Sometimes oligopolists change prices, sometimes quantity. This helps them to control the market and earn more profit. The entire firm has information regarding each other's actions and situation. So, if one firm reduces the price, other firms follow its step, and they also decrease the cost. This is how the oligopolistic market works and earns a profit. It is not surprising at all that in an oligopoly with very few firms, each of which sells a undifferentiated product like chicken growth hormone.
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