Which helps enable an oligopoly to form within a market? A) Costs of starting a competing business are too high. B) The government restricts market entry. C) The number of options in the market confuses consumers. D) No competition exists between producers.
The Correct Answer and Explanation is:
Correct Answer: A) Costs of starting a competing business are too high.
An oligopoly is a market structure in which a few large firms dominate the industry. One of the key factors that enables an oligopoly to form is the presence of high barriers to entry, particularly high startup or entry costs, which is why Option A is the correct answer.
When the costs of starting a new business in a particular market are prohibitively high, it discourages new competitors from entering. These costs might include expensive infrastructure, significant research and development, regulatory compliance, or access to scarce resources. Because only a few firms can afford these costs, they maintain control over the market, leading to the formation of an oligopoly.
For example, industries like telecommunications, automobile manufacturing, and commercial aviation often require billions in initial investment for equipment, licensing, and research. New firms often lack the capital or resources to compete effectively with established players. This means existing firms face little threat from newcomers and can maintain significant market power.
While government restrictions (Option B) can also play a role in limiting entry, they usually support rather than independently cause an oligopoly. Option C, which claims consumer confusion leads to oligopoly, is inaccurate — confusion may affect competition but does not structurally cause oligopolies. Option D, stating there is no competition, is more characteristic of a monopoly, not an oligopoly, where a few firms still compete, though sometimes they may collude.
In conclusion, high entry costs are one of the most fundamental reasons oligopolies form and persist. These costs act as a barrier to entry, enabling a small number of firms to dominate a market while keeping potential competitors out.
