In economics, oligopoly is a market structure characterized by a small number of large firms dominating the industry. The assumptions of an oligopoly include:
- Few Large Firms: A small number of firms control the majority of the market share.
- Interdependence: Firms are aware of and responsive to each other’s actions. One firm’s decisions can affect the others, leading to strategic interactions.
- Barriers to Entry: Significant barriers make it difficult for new firms to enter the market, reinforcing the dominance of existing players.
- Product Differentiation: Firms may produce similar or differentiated products. Product differentiation is often a strategy to reduce direct competition.
- Non-Price Competition: Firms may compete through advertising, branding, innovation, or other non-price factors rather than solely on the basis of price.
These assumptions shape the behavior and dynamics of firms in oligopolistic markets, influencing pricing strategies, market behavior, and competitive interactions.
