What market structure is defined by a few large firms dominating a market?

The market structure characterized by a few large firms dominating a market is called an oligopoly. In an oligopoly, the actions of one firm can significantly influence the actions of the others, leading to interdependence among the firms. This setup often results in strategies such as price setting and collusion, where firms may work together to control prices and output, although such collusion may be illegal in many jurisdictions.

Oligopolies tend to arise in industries where the barriers to entry are high, making it difficult for new firms to enter the market and compete. This concentration makes the market dynamics distinct from those found in other structures. For instance, unlike perfect competition—which features many firms competing with identical products—oligopolistic firms may offer differentiated products and have more pricing power due to limited competition.

Furthermore, in a monopoly, there is only one firm that controls the market entirely, which is different from the competitive dynamics seen in an oligopoly. A monopsony refers to a market structure where there is only one buyer and multiple sellers, which alters the competitiveness from the seller’s perspective. Perfect competition is defined by many firms offering homogenous products, leading to no single firm influencing market prices significantly.