An Oligopoly forms within the market when the costs of starting a competing business are too high.
<h2>Further explanation</h2><h3>Oligopoly </h3>
A market structure that is dominated by few firms thus there is limited competition.
Assumptions
- Products may identical or differentiated
- Firms maximize profit
- There is only few firms in the market
- There is barriers to market entry or exit
- Firms can set their prices
<h3>Other types of market structures </h3><h3>Monopoly </h3>
- A type of market structure where there is a single producer and many buyers.
- A single firm controls the market as it has the highest market power and consumers lack other options.
Assumptions
- Monopolist maximizes the profit
- Monopoly sets the price
- High barriers to exit and entry to the market
- A sole firm dominates and controls the market
<h3>Perfectly competitive market </h3>
- This is a type of market structure that is hypothetical and is considered to have a very high level of competition.
Characteristics of perfectly competitive market
- No barriers of entry or exit to the market
- Goods produced by firms are identical
- Units of input such as units of labor are also identical
- A single cannot influence the market price or prevailing market conditions.
- There are many buyers and sellers
- Buyers and sellers make normal profits in long run
- Buyers and sellers are price takers
- There is perfect knowledge by the consumers and sellers
<h3>Monopolistic competition </h3>
- It is a market structure that has many small firms competing against each other.
- These firms sell similar products that are slightly differentiated in terms of branding, packaging, etc.
Assumptions of monopolistic competition
- Free entry and exit to the market
- Products are differentiated
- Consumer’s preference is applicable
- All firms maximize profits
Keywords: Oligopoly, market structure
<h3>Learn more about:</h3>
Level: High school
Subject: Business
Topic: Market structures
Sub-topic: Oligopoly
