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An oligopoly arises when a market has a few dominant producers.
An example of an oligopoly is the retail petrol and diesel market – several large companies including Exxon Mobil, Shell and BP control the majority of the market (although fuel outlets linked to supermarkets are gaining market share).
Oligopolies have the following characteristics:
Each of the few producers has a high level of influence – and a high level of knowledge of their competitor strategies.
Their decisions are interdependent. Firms must decide their market strategy to compete with close rivals, but they must also try to anticipate their rivals’ reactions and think what the next step should be in the light of this response.
There are high or substantial barriers to entry.
The products may be differentiated or undifferentiated.
The uncertainty and risks associated with price competition may lead to price rigidity.