What defines an oligopoly?

An oligopoly is characterized by a market structure in which a small number of large producers dominate the market. This form of market concentration allows these few firms to have significant control over pricing and market strategies. In an oligopoly, the actions of one firm can directly influence the actions of others, leading to a degree of interdependence among the firms.

This situation often results in behaviors such as collusion, where companies may work together to set prices or limit production, which can lead to reduced competition and potential harm to consumers. The oligopolistic market can lead to higher prices and less variety than would be seen in a more competitive market, where many firms are involved.

The other options describe different market structures: many small producers indicate perfect competition, a single producer describes a monopoly, and unlimited competition suggests a purely competitive market where many firms operate independently without significant market power. Each of these structures has different implications for pricing, production, and consumer choice, differentiating them from an oligopoly.