Oligopoly has a big effect on how companies set their prices because they are all connected to each other. Here are some important points to understand:

1. Price Stability: Prices usually stay the same even when demand changes. Companies do this because they want to avoid getting into a price competition with each other.

2. Kinked Demand Curve:

   • If one company lowers its prices, other companies will likely do the same, which can lead to lower profits for everyone.
   • On the other hand, if a company raises its prices, others might not increase theirs. This can cause that company to lose customers.

3. Collusion: Sometimes, companies work together to set their prices. This is called collusion, and it can lead to groups called cartels. A good example is OPEC, which manages oil prices by controlling how much oil is available.

4. Price Leadership: There’s often one main company that sets the price for everyone else to follow. This helps keep the market stable.