Final answer:
In an oligopoly, a few sellers have substantial control over prices due to the limited number of large firms in the market. These firms may collude to act like a monopolist or compete to reduce prices. The correct answer to the question is 1) oligopoly.
Step-by-step explanation:
In an oligopoly, a few sellers can exert substantial control over prices. This market structure is characterized by a small number of large firms that dominate the market, which results in high barriers to entry for other firms. Oligopolies can be found in various industries, such as the auto industry, cable television, and commercial air travel. In these markets, the few firms that exist may choose to compete aggressively, which can lead to lower prices and reduced profits, similar to perfect competition. However, if these firms collude to restrict output and raise prices, they can generate much higher profits, acting similarly to a monopolistic entity. Such collusion, when explicit, is usually illegal due to regulations that aim to maintain fair competition.
In contrast to a pure monopoly, where only one seller exists in the market for a particular good or service with very high barriers to entry, oligopolies consist of multiple sellers. Each firm in an oligopoly is interdependent on the actions of others, leading to a strategic decision-making environment where firms must consider the potential responses of their rivals when setting prices or production levels. Given the information provided, the correct answer to the question is: In an oligopoly, a few sellers can exert substantial control over prices. Therefore, the appropriate choice among the options given is number 1) oligopoly.