One characteristic of an oligopoly market structure is:
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One characteristic of an oligopoly market structure is that there are only a few firms selling a homogeneous or differentiated product in the market. This means that the market is dominated by a small number of large firms that have significant control over the pricing and production decisions.
To understand how this characteristic is determined, we can look at several factors:
1. Market concentration: In an oligopoly, a small number of firms dominate the market. Market concentration is often measured using metrics like the concentration ratio or the Herfindahl-Hirschman Index (HHI). A high concentration ratio or HHI indicates a more concentrated market, where a few firms hold a larger market share.
2. Barriers to entry: Oligopolies often have significant barriers to entry, making it difficult for new firms to enter and compete. These barriers could include economies of scale, high capital requirements, government regulations, or strong brand loyalty. These barriers limit the number of firms in the market and allow existing firms to maintain their dominance.
3. Interdependence among firms: Oligopolistic firms are aware of and react to each other's actions. Their pricing and output decisions are influenced by the actions and reactions of their competitors. This interdependence can lead to strategic behavior, such as price leadership, collusion, or non-price competition, where firms try to differentiate their products to gain market share.
4. Non-price competition: Oligopolies often compete through factors other than price, such as advertising, branding, quality, or customer service. This is because price competition in oligopolies can lead to a "price war" that could harm all firms involved. By focusing on non-price competition, firms can differentiate their products and maintain profitability.
Overall, the characteristic of limited competition due to a small number of firms is a key aspect of an oligopoly market structure.