An oligopoly describes a market structure which is dominated by only a small number of firms. That results in a state of limited competition. The firms can either compete against each other or collaborate. By doing so, they can use their collective market power to drive up prices and earn more profit. The oligopolistic market structure builds on the following assumptions: (1) all firms maximize profits, (2) oligopolies can set prices, (3) there are barriers to entry and exit in the market, (4) products may be homogenous or differentiated, and (5) there is only a few firms that dominate the market. Unfortunately, it is not clearly defined what a «few firms» means precisely. As a rule of thumb, we say that an oligopoly typically consists of about 3-5 dominant firms. An oligopoly describes a market structure which is dominated by only a small number of firms. That results in a state of limited competition. The firms can either compete against each other or collaborate. By doing so, they can use their collective market power to drive up prices and earn more profit.
To give an example of an oligopoly, let’s look at the market for water stations is Suclaban. This market is dominated by two businesses. That leaves all of them with a significant amount of market power.
In Suclaban, there are just two businesses, a water station to be exact. This is a type of market structure called oligopoly. Oligopoly is described as a small number of firms or companies. In this case, this means this 2 water stations are an oligopoly type of market structure.
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