Which market structure is characterized by a few firms holding market power?

Which market structure is characterized by a few firms holding market power?

• A. Oligopoly
• B. Monopoly
• C. Monopolistic competition
• D. Perfect competition

Answer: (A)

A few firms holding market power describes an oligopoly. In this structure, a small number of dominant companies control most of the market, giving them substantial influence over prices and the level of production. Because there aren’t many players, each firm must consider how the others will react to any pricing or output change, making interdependence a key feature. High barriers to entry keep new competitors from easily entering and eroding that influence. The products can be similar or differentiated, but the defining thing is the limited number of powerful firms. This differs from a monopoly, where a single firm dominates; from monopolistic competition, where many firms offer differentiated products with limited power; and from perfect competition, where many firms are price takers with no one firm able to influence the market price.

A few firms holding market power describes an oligopoly. In this structure, a small number of dominant companies control most of the market, giving them substantial influence over prices and the level of production. Because there aren’t many players, each firm must consider how the others will react to any pricing or output change, making interdependence a key feature. High barriers to entry keep new competitors from easily entering and eroding that influence. The products can be similar or differentiated, but the defining thing is the limited number of powerful firms.

This differs from a monopoly, where a single firm dominates; from monopolistic competition, where many firms offer differentiated products with limited power; and from perfect competition, where many firms are price takers with no one firm able to influence the market price.