Short Answer 
Oligopoly is a market structure characterized by a few dominant firms, high entry barriers, and the ability to set prices on either identical or differentiated products. It contrasts with other structures like monopoly, perfectly competitive markets, and monopolistic competition, each defined by different features and degrees of competition. In oligopolies, firms often engage in strategic behaviors, such as price-setting and collusion, to maximize profits while responding to competitors.
Step 1: Understanding Oligopoly
An oligopoly is a market structure where a small number of firms dominate the market, leading to limited competition. The key characteristics of an oligopoly include:
- Presence of few dominant firms in the market.
- High barriers to entry and exit, making it difficult for new competitors to join.
- Firms often sell either identical or differentiated products.
- Firms have the ability to set prices.
Step 2: Contrasting Market Structures
Several other market structures exist, each with distinct features:
- Monopoly: A single firm controls the market, setting prices with high barriers to entry.
- Perfectly Competitive Market: Many firms sell identical products, with no barriers, where neither buyers nor sellers can influence prices.
- Monopolistic Competition: Many small firms sell similar but slightly differentiated products, allowing for some degree of price setting.
Step 3: Implications of Oligopoly
In an oligopolistic market, firms generally aim to maximize profits while being aware of each other’s actions. This leads to unique market behaviors, including:
- Strategic price-setting and potential collusion among firms.
- Innovation and advertising to differentiate products.
- Market stability or fluctuations based on competitive responses.