Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is a defining trait of an oligopoly?

1. Only one dominant producer

2. Many producers with no influence

3. A few dominant producers with significant market influence

4. Completely homogeneous products

The correct answer is: A few dominant producers with significant market influence

A defining trait of an oligopoly is the presence of a few dominant producers that hold significant market influence. This market structure is characterized by a limited number of firms, which allows them to have substantial control over pricing and output levels. The interdependence among these few firms means that the actions of one producer, in terms of price or output strategy, can significantly affect the others. This influence can lead to strategic behavior, such as collusion or price-setting practices to maximize joint profits. In contrast to other market structures, where either a single firm or numerous firms may dominate, an oligopoly stands out due to the concentrated nature of its producers. This concentration involves firms that are large enough to affect market conditions without being monopolistic, thus leading to a unique competitive environment. The outcomes of oligopolies often include price rigidity and non-price competition, where firms compete through means other than price, such as marketing and product differentiation.