Oligopoly is a unique market structure characterized by a small number of firms that dominate the market, which can sell either identical or differentiated goods. Identical goods are those that are indistinguishable from one another, such as aluminum, where a few producers supply the entire market. In contrast, differentiated goods, like Coca-Cola and Pepsi, are similar products offered by different companies, allowing for brand loyalty and competition based on factors other than price.

In an oligopoly, firms are considered price makers, meaning they have some control over the prices they set, but this power is limited by the actions of their competitors. For instance, if Coca-Cola raises its prices, it risks losing customers to Pepsi, which may lead Pepsi to adjust its pricing strategy accordingly. This interdependence among firms is a defining feature of oligopolistic markets, as each firm's decisions directly impact the others.

Market power, defined as the ability to influence prices, is significant in oligopolies due to the limited number of firms. However, it is not as pronounced as in monopolies, where a single producer controls the entire market. In contrast, perfect competition features many producers and buyers, resulting in no individual market power.

Barriers to entry are another critical aspect of oligopolies. Unlike perfect competition, where firms can easily enter or exit the market, oligopolies often have significant barriers that prevent new competitors from entering. These barriers can include high startup costs, access to distribution channels, and brand loyalty, which protect established firms from new entrants.

Examples of oligopolistic markets include the soft drink industry, dominated by Coca-Cola and Pepsi, and the retail sector, where companies like Walmart and Target hold substantial market shares. Understanding these dynamics is essential for analyzing how firms operate within an oligopoly and the implications for pricing and competition.