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The Sweezy Oligopoly Model

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The Sweezy Oligopoly model, developed by economist Paul Sweezy, is a key economic framework for analyzing markets with a limited number of firms. It highlights the kinked demand curve, strategic firm behavior, and price rigidity. This model is crucial for understanding oligopolistic market structures, informing antitrust policies, and guiding strategic business decisions in industries like telecommunications and aviation.

Exploring the Sweezy Oligopoly Model

The Sweezy Oligopoly model, formulated by economist Paul Sweezy, is a pivotal framework in understanding market structures with few competitors. Central to this model is the kinked demand curve, which posits that firms in an oligopoly are more likely to match price cuts by competitors but not price hikes. This behavior is driven by the desire to maintain market share when prices decrease, while attempting to capture customers seeking lower prices when they increase. Consequently, this leads to price rigidity, a phenomenon where prices tend to stay stable in the face of varying costs.
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Historical Context and Importance of the Sweezy Model

Introduced in the 1930s, the Sweezy model offered an explanation for the observed price stickiness in markets dominated by a few firms, diverging from the competitive models prevalent at the time. For instance, in the airline industry, if one company reduces ticket prices, others typically follow to avoid losing passengers. Conversely, if a company raises fares, competitors may hold their prices steady to attract cost-conscious travelers. This behavior underpins the model's key insight: prices in an oligopoly tend to be 'sticky'. The model remains relevant today, informing antitrust policies and the regulation of industries with few powerful players.

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00

The ______ model, created by ______ ______, is key in analyzing markets with limited competition.

Sweezy Oligopoly

economist

Paul Sweezy

01

Sweezy model's market structure

Explains price stickiness in oligopolistic markets.

02

Sweezy model's price reduction reaction

In oligopolies, firms often match price cuts to maintain market share.

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