What Is an Oligopoly?

When a few firms dominate a market, their decisions are interdependent. That shapes prices, competition, and innovation.

By Felix Narayan | Oct 7, 2026 | 4 min

An oligopoly is a market dominated by a small number of firms. Each firm's decisions affect the others, so firms must consider how rivals will respond.

Many industries, such as airlines, telecoms, and supermarkets in some countries, have oligopolistic features.

I Characteristics

— Few large firms
— Barriers to entry
— Interdependence
— Products may be similar or differentiated

II Competition

Firms may compete on price, but they often compete on advertising, product features, or service to avoid price wars.

III Collusion

Firms may be tempted to coordinate prices or output. Explicit collusion is illegal in many countries and is targeted by competition authorities.

IV Game theory

Economists use game theory to analyse strategic interactions between firms.

V Effects

Oligopolies can lead to higher prices than competitive markets, but economies of scale can also bring efficiencies.

This is general educational information about economics, not financial, investment, or tax advice. Consult a qualified, licensed professional before making financial decisions.

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