Which market structure is characterized by a small number of firms that control most of the market?

Which market structure is characterized by a small number of firms that control most of the market?

• A. Monopoly
• B. Oligopoly
• C. Monopsony
• D. Perfect competition

Answer: (B)

An oligopoly is a market structure in which a small number of firms control most of the market. Because each firm holds a large share, its decisions about price and output significantly affect the others, so firms act with interdependence. This often leads to strategic behavior: firms may compete through advertising and product differentiation, keep prices stable to avoid price wars, or occasionally engage in informal or formal collusion to maintain higher profits. High barriers to entry help these firms maintain their dominant positions. This stands in contrast to a monopoly (one firm controls the market), a monopsony (one buyer controls prices), and perfect competition (many firms, identical products, easy entry, price-taking behavior).

An oligopoly is a market structure in which a small number of firms control most of the market. Because each firm holds a large share, its decisions about price and output significantly affect the others, so firms act with interdependence. This often leads to strategic behavior: firms may compete through advertising and product differentiation, keep prices stable to avoid price wars, or occasionally engage in informal or formal collusion to maintain higher profits. High barriers to entry help these firms maintain their dominant positions. This stands in contrast to a monopoly (one firm controls the market), a monopsony (one buyer controls prices), and perfect competition (many firms, identical products, easy entry, price-taking behavior).