How can oligopoly be defined in economic terms?

Oligopoly is defined as a market structure where a few large firms dominate the industry. In such a market, these firms hold significant market power, which allows them to influence prices and output levels. The few firms in an oligopoly can lead to limited competition and potentially higher prices for consumers compared to more competitive market structures.

In an oligopoly, the actions of one firm can have a significant impact on the others, leading to strategic behavior among the firms. For example, if one firm lowers its prices, the others may follow suit to remain competitive, or they might choose to maintain prices and compete on other factors, such as product quality or marketing. This interdependence is a key characteristic of oligopoly, distinguishing it from other market structures like perfect competition or monopoly.

Understanding this market structure is crucial for analyzing how firms interact in industries such as airlines, automobiles, and telecommunications, where a small number of companies often have substantial control over market dynamics.