What is a characteristic of an oligopoly?

In an oligopoly, a characteristic feature is product differentiation. This means that firms in this market structure often produce similar but not identical products, allowing them to promote unique features or branding. This differentiation creates a competitive edge among firms while still operating within a limited number of competitors.

Firms in an oligopoly must consider the actions and reactions of their competitors when making pricing and output decisions, which often leads to a market where products are not homogeneous, thus allowing for consumer choice based on differentiation. This contrasts significantly with other market structures, such as perfect competition, where products are identical, or monopoly, where there is no competition.

In summary, the focus on product differentiation in an oligopoly allows firms to maintain market power and influence consumer preferences, exemplifying the distinct characteristics of this type of market structure.