Why should the firms ignore a downward price change that threatens their sales but they respond to price increaseswhich doesn't threaten their sales,Provide explanation and illustration in oligopoly ?

Firms in an oligopoly market structure often engage in strategic pricing behavior, where they closely monitor and respond to the pricing decisions of their competitors. In this context, firms may choose to ignore a downward price change that threatens their sales because they believe that their competitors will also lower their prices in response, leading to a price war that could ultimately harm all firms in the industry.

On the other hand, firms may be more likely to respond to price increases that do not threaten their sales because they see an opportunity to increase their profits without triggering a price war. By raising their prices in response to a competitor's price increase, firms can potentially capture a larger share of the market and increase their revenues.

Illustration:
For example, consider a market with two dominant firms, Firm A and Firm B, that both produce smartphones. If Firm A lowers its prices in an attempt to increase its market share, Firm B may choose to ignore this price change and maintain its prices in order to avoid a price war. However, if Firm A raises its prices and Firm B sees an opportunity to increase its profits without risking a price war, it may choose to respond by also raising its prices.

In this scenario, Firm B's decision to ignore the downward price change and respond to the price increase reflects its strategic pricing behavior in an oligopoly market. By carefully considering the potential impact of price changes on their competitors and the overall market dynamics, firms in an oligopoly can make strategic pricing decisions that maximize their profits and competitive position.