Oligopoly
A market structure dominated by a small number of large firms, each of which must account for the actions of its rivals when making decisions.
What is Oligopoly?
An oligopoly is a market structure characterized by a small number of firms that collectively control a significant share of production or sales. Unlike perfect competition (many sellers) or monopoly (one seller), oligopolists are mutually interdependent — each firm's pricing and output decisions affect, and are affected by, the decisions of rivals. This strategic interdependence makes oligopoly the subject of game theory models like the Prisoner's Dilemma and the Cournot model. Oligopolies may compete vigorously on price (the Bertrand outcome) or tacitly collude to maintain high prices (which is illegal in the U.S. under antitrust law). Barriers to entry — capital requirements, economies of scale, brand loyalty, patents — protect oligopolists from new competition. Common oligopolies include the U.S. airline industry, automotive manufacturing, wireless telecommunications, and global oil and gas production.
Example
The U.S. commercial airline industry is a classic oligopoly: American, Delta, Southwest, and United collectively handle over 70% of domestic passengers. When one carrier raises or lowers fares on a popular route, rivals typically match the change within hours — illustrating the price interdependence that distinguishes oligopoly from competitive markets. The industry is monitored by the DOJ Antitrust Division for price-fixing or capacity coordination.
Source: Investopedia — Oligopoly