What Is an Oligopoly?

Oligopoly is a market structure in which only a few businesses can prevent others from exerting substantial influence. The concentration ratio is a measure of the largest companies market share. One firm is a monopoly, two firms are a duopoly, and two or more firms are an oligopoly.
The number of businesses in an oligopoly has no specific upper limit, but it must be small enough that the activities of one firm have a substantial impact on the others.
Steel firms, oil companies, railways, tire businesses, grocery store chains, and cellular providers have all been oligopolies in the past. An oligopoly, according to economic and legal concerns, can stifle new entrants, impede innovation, and raise prices, all of which damage consumers.
Instead of obtaining prices from the market, firms in an oligopoly determine pricing, whether collectively in a cartel or under the leadership of a single business. As a result, profit margins are larger than in a more competitive market.

Oligopoly arises when a small number of large firms have all or most of the sales in an industry. Examples of oligopoly abound and include the auto industry, cable television, and commercial air travel. Oligopolistic firms are like cats in a bag. They can either scratch each other to pieces or cuddle up and get comfortable with one another. If oligopolists compete hard, they may end up acting very much like perfect competitors, driving down costs and leading to zero profits for all. If oligopolists collude with each other, they may effectively act like a monopoly and succeed in pushing up prices and earning consistently high levels of profit.