Final answer:
An oligopoly is a market structure with a few dominant firms that control the majority of the market share and have significant power over prices. These firms can engage in behaviors akin to a monopolist, but such collusion is typically illegal and unstable. Oligopolies are common in industries with high barriers to entry and can involve differentiated or identical products.
Step-by-step explanation:
Oligopoly
An oligopoly is a situation in a market where there are only a few sellers, typically large firms, that occupy the majority of the market share and have significant control over the pricing of products. Unlike a monopoly, where a single company has exclusive control over a market or a product, an oligopoly consists of a few companies that have high barriers to entry for others. These firms sell either identical or differentiated products. Oligopolies can lead to higher profits for the companies involved, especially if they function as a cartel and collectively agree to reduce output and raise prices, similar to a monopolist's behavior. However, such explicit collusion is illegal in many countries, and even when it occurs, it may be unsustainable as members of the cartel may have incentives to cheat by expanding output for individual gain.
Oligopolistic markets can be observed in industries like automobiles, telecommunications, and certain consumer goods, where product differentiation can help companies maintain market power and withstand competition more effectively. The interdependence among firms in an oligopoly is significant; one firm's pricing or output decisions can have a direct impact on the others. This dynamic often leads to a careful consideration of competitors' potential reactions when making strategic business decisions.