Which of the Following is the Correct Oligopoly Definition?

Which of the Following is the Correct Oligopoly Definition?

A) There are many sellers offering identical products.
B) A single seller dominates the entire market.
C) A few firms dominate the market, and their actions affect each other.
D) Firms have no control over pricing due to perfect competition.

Correct Answer: C) A few firms dominate the market, and their actions affect each other.

Explanation: An oligopoly is a market form in which a few companies dominate a large portion of the market. Because of this limited competition, what one firm does has a direct effect on the other companies. Companies in an oligopoly tend toward strategic decision-making, which involves changing prices, production levels, or advertisement policies in relation to their rivals' actions. Telecommunications, airline businesses, and car manufacturing industries are examples of industries involving oligopolies.

Since the market has a limited number of dominant companies, entry barriers tend to be high and entry by new companies is hence hard. Oligopolies tend to engender collusive tendencies whereby companies collude either explicitly or tacitly not to compete hard and as a result charge higher prices for consumers. Competition may, however, be present in non-price methods such as advertisement and differentiation by product quality. The regulatory agencies tend to watch these markets carefully so as not to promote non-competitive behaviour and safeguard consumer interests.

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