Which feature is common in an oligopoly?

• A. A single firm dominates
• B. A few large firms dominate the market and interdependence affects pricing
• C. Many firms with identical products
• D. No barriers to entry

Answer: (B)

Oligopoly involves a small number of large firms whose pricing and output decisions are highly interdependent. Because each firm’s choices directly affect the profits of the others, they must anticipate rivals’ reactions and often act strategically rather than independently. This interdependence also helps explain why prices in an oligopoly can be sticky—firms hesitate to change prices for fear of triggering price wars or nonprice competition from competitors. There are typically barriers to entry that keep new firms from easily entering and taking market share, which helps the existing players maintain their collective influence.

If there were a single firm, that would be a monopoly, not an oligopoly. If many firms offered identical products, that would resemble perfect competition, with price-taking behavior. And if there were no barriers to entry, new firms could erode any market power, which again contradicts the typical oligopoly structure.