The oligopoly market structure is characterized by several defining qualities, one of which is either similar or identical products. Of the following list of characteristics, which others describe the oligopolistic market structure? Check all that apply.
Market control by many small firms
Neither mutual interdependence nor mutual dependence
Mutual interdependence
Difficult entry
Market control by a few large firms
The correct answer and explanation is :
The correct characteristics of an oligopolistic market structure are:
✅ Mutual interdependence
✅ Difficult entry
✅ Market control by a few large firms
Explanation (300 Words)
An oligopoly is a market structure where a few large firms dominate the industry. This concentration of market power leads to mutual interdependence, barriers to entry, and strategic decision-making.
1. Market Control by a Few Large Firms
Unlike perfect competition or monopolistic competition, where many small firms exist, an oligopoly consists of a small number of large firms that collectively control the majority of market share. Examples include the automobile, airline, and telecommunications industries. These firms have significant influence over pricing, production, and overall market trends.
2. Mutual Interdependence
One of the defining features of an oligopoly is mutual interdependence. Since there are only a few dominant firms, each firm’s decisions (such as pricing, output, or marketing strategies) significantly affect the others. For example, if one airline lowers its fares, competitors may be forced to do the same to maintain market share. This often leads to price rigidity and non-price competition (e.g., advertising and product differentiation).
3. Difficult Entry
Entry into an oligopolistic market is difficult due to high barriers. These barriers may include economies of scale, high startup costs, brand loyalty, government regulations, and access to key resources. New firms struggle to compete with established companies that already have strong customer bases and financial stability.
Why the Other Options Are Incorrect
❌ Market control by many small firms – This describes perfect or monopolistic competition, not an oligopoly.
❌ Neither mutual interdependence nor mutual dependence – Oligopolies are characterized by interdependence; firms consider competitors’ actions before making decisions.
In summary, an oligopoly consists of a few dominant firms, has high entry barriers, and operates under mutual interdependence, making it a unique and competitive market structure.