What defines oligopolistic competition?

Oligopolistic competition is characterized by a market structure where a small number of firms have significant market power and influence over prices and market decisions. This situation creates a stable competitive environment because the actions of one firm can substantially impact the others. Firms in an oligopoly may collaborate or engage in strategic behavior, knowing that their choices—such as pricing and production levels—directly affect their competitors. This interdependence leads to a unique form of competition where firms tend to maintain market stability to avoid detrimental price wars or significant fluctuations.

In contrast, options that describe numerous independent firms or a single firm having complete control reflect different market structures. A market with many firms competing independently would be characteristic of perfect competition, where no single firm has market control. A monopoly, on the other hand, involves a single firm dominating the market entirely, which eliminates the competitive dynamics seen in oligopolistic situations. Lastly, fluctuating product demand may occur across various market types but does not specifically define oligopoly, as stability often characterizes this competition.