market niches in which Toyota plays a smaller role. Or they might leave
their output levels unchanged and introduce new options on their
compact cars in an attempt to attract consumers to their products. The
same basic issue applies to TD Bank when it considers how its rivals BMO
and CIBC will respond to its actions, or to Loblaws and Sobeys and
Metro, Air Canada and WestJet, Apple and Microsoft, or any other firms
in oligopolistic industries.
The general point is that determining the level of output that maximizes
profits is complicated for an oligopolistic firm because it must consider its
rivals’ likely responses to its actions. Economists say that oligopolists
exhibit strategic behaviour , which means they take explicit account of
the impact of their decisions on competing firms and of the reactions they
expect them to make. In the remainder of this section we examine the
strategic behaviour practised by oligopolistic firms.
Oligopolistic firms often make strategic choices; they consider how their rivals are likely to
respond to their own actions.