ABSTRACT
The monopolist or monopolistic competitor who lowers his price in the expectation of selling more is counting on a response from others to his own action. Those others, however, may include other sellers whose own prices, lowered because he has lowered his, will lessen the extent of his increase of sales. If the market for some type of commodity or for the means of satisfying some class of needs (transportation, entertainment, warmth) is shared by only a few suppliers, the actions of one may have very noticeable effects on the sales of the others, and their riposte may be correspondingly vigorous. Our firm’s awareness of this possibility may modify its choice of policy or particular action. What is the essential difference between the two classes of situation, that of the firm facing many buyers and many competitors, and that of the one with few competitors, or even with few buyers? In both cases, the question what is our firm’s best policy can only be answered in the light of some assumption or belief about the response of others. But when the others are a large number of buyers, each taking only a small fraction of our firm’s output, their reaction to a given price change can be more easily and confidently estimated, than when the others include a few rival suppliers. And the source of this difference is the rival suppliers’ recognition of their own power to influence appreciably the circumstances of our firm’s selling operations.
