An oligopoly is a market dominated by a few large sellers. Think airlines, telecommunications, or soft drinks. Each firm watches the others closely. A price cut by one triggers a response. A new ad campaign invites imitation. The result is a tense, strategic dance.

Firms in an oligopoly can compete or collude. Collusion, formal or tacit, lets them act like a monopoly and share the profits. Cartels like OPEC are formal examples. Tacit collusion, where firms simply avoid undercutting each other, is harder to prove but common.

Governments regulate oligopolies to prevent collusion and protect consumers. Antitrust authorities review mergers that would concentrate a market further. The line between aggressive competition and illegal coordination is not always clear. Economists use game theory to model how firms behave.

Key features

• Few large sellers
• Interdependence among firms
• Barriers to entry
• Potential for collusion
• Non-price competition