Explain oligopolistic competition?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Competition in an oligopoly is different from competition in perfect competition or monopolistic competition.  The main reason for this is that an oligopolist must pay attention to what its competitors are doing while firms in the other market structures do not need to.

In an oligopoly, there are a very few firms.  Each has enough market share to really impact the market as a whole if it does something like changing its prices.  Because of this, the competitors in an oligopoly must monitor each other.  They must try to take the others' actions or likely actions into account as they plan.  

Because of the small number of firms in an oligopoly, oligopolists must pay attention to one another's actions.  This makes oligopolistic competition different from other forms of competition.

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