In an oligopoly, what is a common characteristic?

In an oligopoly, a defining characteristic is the interdependence among firms in the market. This means that the actions of one firm, such as changes in price or output, can significantly influence the decisions and strategies of other firms. Because there are only a few firms in an oligopolistic market, each firm must carefully consider the potential reactions of its competitors when making decisions.

Firms in an oligopoly often engage in strategic behavior, such as price-setting or advertising, with the awareness that their rivals will respond in some way. This dynamic leads to complex scenarios such as price wars or collusion, where firms may tacitly agree to set prices at a certain level to maximize their joint profits.

In contrast, in a perfectly competitive market, firms operate independently, and their pricing decisions are based solely on their own costs without concern for competitors. Identical market shares among firms or the inability of any firm to influence prices describes scenarios more typical of perfect competition or monopoly, rather than the interdependent nature found within oligopolies.