What is the defining feature of an oligopoly?

The defining feature of an oligopoly is that a few sellers dominate the market, and they typically offer products that are either homogenous or differentiated. In an oligopoly, the actions of one seller can significantly impact the actions of the others, leading to strategic decision-making among the few firms involved. This interdependence often results in unique market behaviors, such as price fixing or collusion, which are less common in markets with a larger number of competitors.

In this context, when a few sellers provide essentially homogenous products, it means that the products are similar enough that customers see them as substitutes, but the limited number of sellers gives them a degree of market power. This situation leads to a distinct competitive environment, where firms must consider the reactions of their rivals when setting prices or output levels, making strategic planning crucial.