(a) Inter-dependence between firms in an oligopoly market implies that an individual firm takes into consideration the likely reaction of its rival firms before making a move to change price or output. It is possible because it is assumed that rival firms may react.
(b) Non-price competition means competition means competition between firms by means other than changing price, like free gift, home service, customer care etc. The firms in oligopoly do so to avoid price-war because the firm who starts the price-war may be the ultimate loser.
Detailed Answer:
(a) Interdependence between firms:
(i) The most important characteristic feature of oligopoly is interdependence among its firms. The number of sellers is small in this market and each of these firms contribute a significant proportion in the total sales.
(ii) As a result, when any one of them undertakes any measure to promote its sale it directly affects other firms and they also immediately react.
(iii) Hence, every firm decides its policy after taking into consideration the possible reactions of its rival firms. Thus, every firm is affected by the activities of other firms and it affects others also.
(b) Non-price competition: When there are only a few firms they are normally afraid of competing with each other by lowering the price. It may start a price war and firm who starts the price war may ultimately lose. Thus, firms indulge in non-price competition in order to increase their shares in sales and profit. Under non-price competition they mainly utilise publicity and selling techniques for increasing the sales of their product.
Firms under oligopoly follow the policy of rigidity. Price rigidity refers to a situation in which price tends to stay fixed irrespective of changes in demand and supply conditions.
