What is meant by prices being rigid? How can oligopoly behaviour lead to such an outcome?
Price rigidity means price under oligopoly tends to be fixed or constant despite the changes in demand and cost in the industry. The firms under oligopoly believe that if they raise the price, the rivals will not follow it but if the firms cut down the price, the rival firms will also do the same. Thus, oligopoly firms prefer to stick at the existing price. This behaviour of oligopoly firms, to maintain a prevailing price is termed as price rigidity.