Oligopoly is when a small number of producers work, either explicitly or tacitly, to restrict output and/or fix prices, in order to achieve above normal market returns. Economic, legal, and technological factors can contribute to the formation and maintenance, or dissolution, of oligopolies.

When can the oligopoly exist?

Oligopoly arises when a small number of large firms have all or most of the sales in an industry. Examples of oligopoly abound and include the auto industry, cable television, and commercial air travel. Oligopolistic firms are like cats in a bag.

What are the conditions for an oligopoly?

The existence of oligopoly requires that a few firms are able to gain significant market power, preventing other, smaller competitors from entering the market. Increasing returns to scale is a term that describes an industry in which the rate of increase in output is higher than the rate of increase in inputs.