Competitive Behaviour
Firms in an oligopoly often choose to compete actively with each other in
an attempt to attract consumers away from their rivals, to increase their
overall share of the market, and to increase their profits. Such actions are
generally good for consumers because they result in lower prices, better
products, or better service. For the firms engaged in such competition,
however, it can be a real challenge. Winners find their profits rising and
their business expanding; losers see their business shrinking and profits
falling.
Three major types of competitive behaviour are worth noting. First, firms
with differentiated products may compete by reducing their prices and
hoping to attract customers away from their rivals. This behaviour is
common among car makers, cellphone service providers, and commercial
banks.
Second, firms often actively engage in non-price competition, especially
through advertising campaigns and variations in product quality. The
markets for fast food, consumer electronics, laundry detergent, disposable
diapers, and a whole range of familiar consumer products display this
kind of competition.
Finally, many firms find that they can keep a step ahead of their rivals by
developing new products or by making significant improvements in