CMA Foundation · Fundamentals of Business Economics and Management · Forms of Market
Which feature best distinguishes an oligopoly from other forms of market?
The defining feature of oligopoly is that a few sellers dominate the market and their decisions are mutually interdependent, because each firm's price or output choice affects rivals and provokes reactions. Many sellers, a single seller, or free entry describe other market forms.
- AA very large number of sellers selling identical goods
- BA single seller with no close substitutes
- CA few sellers whose pricing decisions are mutually interdependentCorrect
- DFree entry and exit of firms with differentiated products
Explanation
In an oligopoly a few firms dominate the market, so each firm must consider how rivals will react to its price or output changes. Many sellers of identical goods describes perfect competition, and a single seller describes monopoly. Free entry with product differentiation describes monopolistic competition.
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