CPPB Domain II Sourcing Practice Test

An oligopoly is a market condition in which a small number of firms dominate the market for a product or service. Because only a few players hold most of the market share, each firm’s pricing and output decisions affect the others, leading to interdependence and strategic behavior. Barriers to entry are typically high, which helps these firms maintain their positions over time.

This setup contrasts with a monopoly, where a single firm controls the entire market; perfect competition, where many firms sell identical products with easy entry and exit; and monopolistic competition, where many firms compete with differentiated products. In an oligopoly, you often see either price leadership or coordinated behavior to avoid destructive competition, and the products can be either homogeneous or differentiated.