What is an oligopoly?

• A. When a few large firms have all or most of the sales in an industry
• B. Many firms selling identical products
• C. One firm dominates the market
• D. Firms cannot collude

Answer: (A)

An oligopoly is a market structure where a small number of large firms control most of the sales in the industry. Because there aren’t many players, each firm must consider how its rivals will respond to any price or output decision, making interdependence a key feature. This leads to strategic behavior: firms may compete on quality, branding, or service, and they often avoid aggressive price-cutting to prevent a costly price war. Entry barriers—like high startup costs, brand loyalty, or access to technology—help maintain their market power. Collusion—either explicit or tacit—can occur in oligopolies, but it isn’t required for the structure to exist. This setup is different from perfect competition (many firms, identical products), monopolistic competition (many firms with differentiated products), and a monopoly (one firm dominates).