What characterizes an oligopoly?

An oligopoly is characterized by a market structure in which a few large firms dominate the industry. This concentration of market power means that these firms often have a significant influence on prices and output levels. Unlike perfect competition, where many small firms operate independently, or a monopoly, where a single firm controls the entire market, an oligopoly exists when the actions of one firm can directly impact the others.

In such markets, firms may engage in strategic behavior, such as collusion, product differentiation, or price setting, to maximize their profits. This creates a highly interdependent scenario, where each firm's decisions are closely watched by its competitors, leading to a unique market dynamic. Consumers in an oligopoly may experience less variety and potentially higher prices compared to more competitive market structures.