Of large firms, selling either identical or differentiated products, and there are significant barriers to entry into the industry. This is one of four basic market structures. The other three are perfect competition, monopoly, and monopolistic competition.

Oligopoly being a general market structure category, dominates the modern economic landscape. About half of the output produced in the world's economy can be traced to oligopolistic industries. Oligopolistic industries are as diverse as they are widespread. Oligopoly ranges from breakfast cereal to cars, from computers to aircrafts, from television broadcasting to pharmaceuticals, from petroleum to detergent. Because each firm in an oligopolistic industry is relatively large, each has a substantial degree of market control. It's not total control like in a situation of monopoly, but it's significantly greater than that of a monopolistically competitive firm. While monopolistic competition and oligopoly have distinct identifiable characteristics, they really form a continuum on the spectrum of market structures. Any boundary separating oligopoly from monopolistic competition is fuzzy at beast.

Oligopolies As the formation of trusts was restricted in the United States and cartels came under greater regulation in Europe, the oligopoly became the predominant big-business structure. With four or five large firms responsible for most of the output of each industry, avoidance of price competition became almost automatic. If one firm were to lower its prices, it is likely that its competitors will do the same and all will suffer lower profits. On the other hand, it is dangerous for any single firm to increase its prices since the others might hold their prices in order to gain market share. The safest thing is to never lower prices and only raises prices when there is abundant evidence that the other firms will also raise prices. The largest or lowest-cost or most aggressive firm will often emerge as the price leader. When business conditions permit, the price leader will raise prices with the expectation that the others will follow. The practice of price leadership prevails in many industries:

Automobiles, breakfast cereals, beer, steel and bank loans are among the many goods and services that are usually priced in this manner.

In many parts of Europe, cartels were legal. Firms in the same line of business would enter into a formal - and enforceable - agreement to limit production and thus maintain high prices. But both arrangements - trusts and cartels - brought business stability (and profits) at the cost of high consumer prices, limited new investment (in order to limit production) and a diminution of the type of competition that drives firms to develop new products and new production processes.

While normally one thinks of national or global industries when oligopolies are conversed about. There are also local oligopolies. If a city only has two commercial bakeries or three radio stations these firms would enjoy economic power stemming from market share, although their small absolute size might not be much of a barrier to potential competitors. Oligopolistic firms that operate on a national or global scale are also huge in another sense they are just plain big. Many have several hundred thousand employees and multi-billions of dollars in assets. Size is itself a source of power. Size provides protection against potential competition remember that ease of entry is one of the factors by wh

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