What is an oligopoly?

An oligopoly is characterized by a market structure in which a small number of firms hold a significant share of the market. This clustering of firms allows them to have considerable market power and influence over prices, product offerings, and strategic decisions. Oligopolistic markets often exhibit interdependence among firms, where the actions of one firm can directly affect the behavior and decisions of others, leading to various forms of competitive strategies such as price-fixing, collusion, or even non-price competition.

The presence of only a few firms typically leads to a less competitive environment compared to more fragmented market structures, such as perfect competition, where many firms exist and none can significantly influence market conditions. Oligopolies can result in higher prices for consumers and reduced selection, as firms may work together to maintain their market dominance rather than competing fiercely against one another. This dynamic of limited competition captures the essence of an oligopoly.