Oligopoly has these characteristics: a) many small companies with little or no control over price. b) one company with much control over price. c) many varying sized companies with some control over price. d) usually 4-6 companies with some control over price.
The correct answer and explanation is:
The correct answer is d) usually 4-6 companies with some control over price.
Oligopoly is a market structure where a small number of large firms dominate the industry. This is different from perfect competition, where many small firms exist with no control over the price. In an oligopoly, the firms have a significant influence over the market price, but not complete control. The number of firms in an oligopoly tends to be limited, typically ranging from 4 to 6, but this can vary depending on the industry.
A key feature of oligopoly is that the firms in the market are interdependent. This means that the actions of one firm, such as a change in price or the introduction of a new product, can directly impact the behavior of other firms. As a result, companies in an oligopoly are likely to engage in strategic decision-making, often anticipating the reactions of their competitors.
Another characteristic of oligopolies is that they may engage in collusion, either explicitly or tacitly, where firms agree to set prices or limit production to maximize their collective profits. This is why some control over price exists, as firms in an oligopoly can influence market prices to a certain extent through these actions. However, full control over price is rare because of the competitive nature of the few firms involved. Price wars can occur, and companies may compete in non-price factors such as advertising, product differentiation, and innovation.
Overall, oligopolies are marked by a small number of firms with some level of pricing power, but still influenced by market forces and the actions of competing firms.