What are the basic characteristics of oligopoly market structure?

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In an oligopoly, several large corporations dominate the market, although there may be some smaller players. The soft drink (soda) industry is a good example of an oligopoly. Pepsi and Coke dominate. Faygo might be really good and popular in the Midwest, but it does not have much influence over the market. In reality, an oligopoly only needs two or more businesses to earn the definition, so the cell phone business is another good example. Even though Vodafone and some others are prevalent in Africa and China, in the overall global market, Verizon, AT&T, and T-Mobile have the most influence over price and production domestically.

There are three main characteristics of an oligopoly:

1. Two or more large firms must dominate the industry.

2. These companies sell identical products.

3. There are significant challenges to entering this market (not everyone can join).

For more information, visit the OECD (Organization for Economic Cooperation and Development) at the link below.

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The basic idea of oligopoly is that it is a market structure in which there are only a very few large firms that are participating in the market.  The main characteristics of this market structure are:

  • A small number of sellers, enough that any one of them can influence the overall market. 
  • Homogeneous or differentiated product. 
  • Difficult to enter the market.  This means that new competitors cannot easily enter to compete with the firms already in the market.

Firms in this market structure must pay a good deal of attention to one another as the actions of each firm can have a major impact on competitors.  This is the market structure of big businesses such as auto makers.

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