Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is a primary characteristic of an oligopoly market structure?

1. Single seller with no competition

2. Numerous firms with no market influence

3. High level of influence among few dominant sellers

4. Homogeneous products offered by all firms

The correct answer is: High level of influence among few dominant sellers

In an oligopoly market structure, a primary characteristic is that there are a few dominant sellers in the market who have a significant level of influence over prices and market conditions. This means that the actions of one firm can substantially impact the others, leading to a situation where firms are interdependent. They often engage in strategic decision-making, considering the potential reactions of their competitors when making pricing, output, or marketing decisions. This interdependence results in a market that is not perfectly competitive, as firms in an oligopoly can collaborate in informal ways to set prices or limit production, although such collusion may be illegal in many jurisdictions. This characteristic contrasts with other market structures. For example, in a monopoly, there is only one seller with no competition. In a perfectly competitive market, numerous firms exist but have no market influence; they are price takers, meaning they cannot influence the market price. Lastly, while firms in an oligopoly might offer similar products, it is not a defining trait, as these products can also be differentiated, which is not the case in a market with homogeneous products. Thus, the high level of influence among a few dominant sellers is what distinctly defines an oligopoly, making it accurate to identify this characteristic as central to the