What type of firms typically make up an oligopoly?

Oligopoly is a market structure characterized by a small number of firms that dominate the market. In this scenario, each firm holds a significant share of the market, which means that the actions of one firm can have a noticeable impact on the choices and performance of the others. The limited number of firms leads to interdependence, as these firms must consider the potential reactions of their competitors when making pricing and production decisions.

This structure contrasts with other market forms. For example, a large collection of firms would indicate a competitive market rather than an oligopoly, where collaboration and pricing strategies among a few key players shape the market dynamics. While multinational corporations can be part of an oligopoly, this descriptor is too narrow and does not encompass smaller firms that may also exist within an oligopolistic market. Very small retail businesses typically operate in fragmented markets with many competitors, rather than exhibiting the characteristics of an oligopoly. Thus, the defining feature of an oligopoly is the small number of firms involved.