Question

What is an oligopoly? Provide an example.

Answer 1

• An oligopoly is a market structure consisting of small number of large firms or dominant firms.
• This market structure are usually called price makers rather than price takers as they have their market structure and thus possess the ability to set their own prices.
• They either sell identical or differentiated products and earm higher abnormal profits in long run.
• Within an oligopoly market, as the firm's possess the ability to set prices, barriers to entry are very High which prevents other firms from entering into the market for. There by reducing competition in the market.
• These firms made collude together to form a group and work together by setting higher prices for goods and services which harms their consumer's.
• An example of an oligopoly is a steel industry which consists of only few dominant firm's.