Final answer:
An oligopoly is a market structure where a few large firms dominate the industry and control prices. Collusion between these firms can result in reduced output and higher prices. However, collusion is often challenging due to various factors.
Step-by-step explanation:
An oligopoly is a market structure where a few large firms dominate the industry and have significant control over the prices of goods or services. These firms often produce differentiated products and possess market power, which prevents smaller firms from entering the market. When firms in an oligopoly collude, they can act like a cartel and reduce output to raise prices, similar to a monopoly. However, collusion is often difficult due to the self-interest of each firm and the legal restrictions on explicit collusion.