What is an oligopoly?

An oligopoly is characterized by a market dominated by a small number of sellers, which creates a situation where these sellers can influence prices and market decisions. In an oligopoly, the few participating firms offer similar or differentiated products, but they are interdependent in their pricing and marketing strategies. This means that the decisions made by one firm can significantly affect the others, leading to a competitive environment that is distinctly different from both perfect competition and monopoly.

In this context, the correct option highlights that an oligopoly consists of a limited number of sellers without perfect substitutes available for consumers. This lack of substitutes allows these firms to maintain a certain degree of market power, enabling them to set prices above the marginal cost, unlike in purely competitive markets where many sellers lead to price-taking behavior.

Understanding this concept is crucial for analyzing market behaviors, competitive strategies, and economic implications within various industries, as firms in oligopoly often engage in strategic actions such as collusion or price wars to achieve favorable outcomes. This insight helps in exploring ethical considerations in procurement and supply, particularly regarding practices that might arise in concentrated markets.