What is an oligopoly?

An oligopoly is characterized as a market structure where a small number of firms dominate the market and collectively exert control over the supply and pricing of a product or service. This situation arises because the few companies involved have significant market power, allowing them to influence market outcomes without needing to compete with a large number of rivals.

Oligopolies can lead to outcomes such as price rigidity, where prices tend to remain stable as companies may avoid competing on price to maintain profits, and they often have the ability to collaborate or coordinate to set prices or output levels, through tacit or explicit agreements. These characteristics greatly distinguish oligopolies from other market structures like perfect competition or monopoly, where the dynamics of competition and market power are different.

In contrast, the other options highlight different market scenarios. A scenario with many firms competing represents perfect competition, wherein numerous players have minimal market power, leading to competitive prices. A business model based on government regulation does not accurately define oligopoly, as oligopolies can exist both in regulated and unregulated markets. Lastly, a pricing strategy exclusive to single companies describes monopolistic practices, where a sole firm controls the market without competition, which does not align with the definition of oligopoly. Therefore, the identification of oligopoly