The shape of the demand curve facing an oligopolist depends on the responses of its rivals to a change in the price of its own output.

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In an oligopoly, the actions of one firm can have a significant impact on the pricing decisions of its competitors. Therefore, the demand curve that an oligopolist faces is affected by the anticipated reactions of its rivals to any changes in price or output. If the rivals are likely to match the price cuts of the firm, then the demand curve will be highly elastic, meaning that a small price reduction will lead to a large increase in the quantity demanded. However, if the rivals are likely to stick to their existing prices, then the demand curve will be relatively inelastic, and the firm may have more pricing power.

The Shape of the Demand Curve Facing an Oligopolist Depends